4:20pm: 493 of S&P 500 components close higher
The Dow closed Friday up 823 points, 2.7%, to 31,501, the Nasdaq Composite improved 375 points, 3.3%, to 11,608 and the S&P 500 added 116 points, 3.1%, to 3,912. The rally was widespread, as 493 of the S&P 500 components closed in the green.
The benchmarks were able to snap a three-week losing streak thanks to broad rallies on Thursday and Friday. The question is whether the gains are here to stay.
“We believe that bounce in US equity markets over the past three trading days has been a bear market rally off deeply oversold conditions,” Wolfe Research’s Chris Senyek wrote in a Friday note, CNBC reported.
“While there may be some additional near-term follow through, we believe that our intermediate-term bearish base case remains intact and that the next leg down is going to be driven by rising recession risks and downward earnings revisions,” Senyek added.
12.05pm: Stocks headed for weekly gains
US stocks continued to rise at noon with the major indexes on track to snap their three-week losing streak.
At midday, the Dow Jones Industrial Average had added 667 points at 31,344 points.
The S&P 500 was up 92 points at 3,888 points and the Nasdaq Composite had gained 271 points at 11,503 points.
CMC Markets UK chief market analyst Michael Hewson noted that the worst-performing parts of the market this week had been oil companies, with the likes of ConocoPhillips (NYSE:COP) and Devon Energy seeing falls of between 15% and 20%.
He added that today’s final University of Michigan sentiment survey, which showed consumer confidence fell to a new record low of 50 in June, showed the Federal Reserve may have overreacted when it comes to inflation.
“The inflation expectations numbers fell back to 3.1% on the one-year measure, and to 5.3% on the five to 10-year measure,” Hewson said. “This decline in inflation expectations has served to act as an additional tonic for markets as we headed towards the weekend.”
Meanwhile, new US home sales surprisingly bounced 10.7% to 696,000 in May, but it is expected that this was a short-term blip in a clear downward trend.
ING chief international economist James Knightley said surging mortgage borrowing costs and a general lack of affordability meant transaction numbers would fall sharply in the coming months. “With supply on the rise, home price growth will slow sharply and likely fall in some areas,” he said.
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9.35am: Stocks rise after volatile week
US stocks opened higher on Friday as softer economic data and Fed chair Jerome Powell’s comments reaffirming the central bank’s commitment to fighting inflation during his two-day Congressional testimony this week have encouraged bargain hunters to strike.
Just after the open, the Dow Jones Industrial Average had gained 282 points at 30,960 points.
The S&P 500 had added 37 points at 3,832 points and the Nasdaq Composite was up 120 points at 11,352 points.
OANDA senior market analyst Craig Erlam noted that this week had not been the blockbuster that last week was. “Policymakers have been out there reaffirming their positions, offering nothing new of note that will shift the dial in the markets,” he said.
“We remain where we were a week ago, central banks are mostly determined to get a grip on inflation, even if that means tipping their economies into recession. There are plenty more super-sized rate hikes to come over the summer.”
He added that commodities had not been immune to the recent waves across financial markets at the prospect of a recession.
“Oil prices have undergone quite a significant correction over the last couple of weeks as traders adapt to the increased recession risks, one of the few things that could partially address the imbalance in the market,” he said.
“Very little has changed as far as gold is concerned. It remains rangebound, although interestingly it hasn't received a lift this week from yields creeping lower.”
6.30am: Friday fun
US stocks were expected to open higher on Friday with softer economic data from the world’s biggest economy helping investors scale back some of their most aggressive expectations for inflation.
The spate of stock market falls over recent weeks is also bringing out the bargain hunters again and looks set to shore up the main indices as another volatile trading week closes.
Futures for the Dow Jones Industrial Average rose 0.8% in pre-market trading, while those for the broader S&P 500 index rose 0.7%, and contracts for the Nasdaq-100 were up 0.9%.
“US and European futures are trading higher as bargain hunting is taking place,” said Naeem Aslam chief market analyst at avatrade.com.
“The Nasdaq index, which has been driving the markets lower for the past number of months and quarters, has found some love among investors and traders, and it was the Nasdaq index that actually pulled the US markets out of its negative territory to a positive one,” he added.
Some sectors have really taken a hit over recent weeks and are ripe for bargain hunters.
“There is no doubt that the entire tech sector is higher oversold, and there are some great bargains and traders are finding it difficult to resist, especially when stocks like Meta and Netflix are down over 70% from their recent highs,” Aslam noted.
Economic data out recently came in below expectations. While many investors still believe the US will slip into a recession over the coming months, some sections of the market are now hoping that the softer economic data might mean that inflation too could start to ease.
“In terms of economic numbers, we saw the US Manufacturing PMI numbers falling off a cliff yesterday. It became even more clear that economic growth is slowing down, and it is only a matter of a time before we will see recession readings in front of us,” said Aslam.
In energy markets, WTI crude oil futures rose 1.2% to $105.51 a barrel and Brent crude futures gained 1.1 % to $111.26.
Contact the author at jon.hopkins@proactiveinvestors.com