The US benchmarks rebounded on Friday, closing higher as investors again considered the impact of interest rate hikes and the path the Federal Reserve is set to take in coming months.
All three indices closed higher, led by a comeback in the technology-heavy Nasdaq Composite, which surged more than 3%.
Dow Jones Industrial Average, S&P 500 and Nasdaq all gained on the week, snapping three straight weeks of losses.
The Dow Jones Industrial Average made up 823.32 points, or 2.7%, to close at 31,500.68, its largest daily percentage gain since May 4. The S&P 500 gained 116.01 points, or 3.1%, to finish at 3,911.74, its biggest daily percentage gain since May 18, 2020. The Nasdaq Composite was 375.43 points, or 3.3% higher, to end at 11,607.62, its largest daily percentage gain since May 13.
For the week, the Dow gained 5.4%, the S&P 500 climbed 6.5% and the Nasdaq jumped 7.5%.
The performance of US markets mirrored the ASX, where beaten-up technology and lithium shares rebounded.
The S&P/ASX 200 rose 0.8% to 6,578.7 on Friday, taking its weekly gain to 1.6%, with the benchmark snapping a two-week losing streak. The broader All Ordinaries Index rose 1.1% to 6,762.4.
A big performer was lithium miner Vulcan Energy Ltd, which jumped 26.8% to $6.34 after it brought European automaking giant Stellantis on board as its second-largest shareholder.
ASX SPI 200 futures were up 1.6% to 6,573 by the US close, pointing to a positive opening this morning.
Here’s what we saw (Source Commsec):
- The Euro rose from lows near US$1.0515 to highs near US$1.0570 and was near US$1.0555 at the US close.
- The Aussie dollar rose from lows near US68.90 cents to highs near US69.55 cents and was near US69.50 cents at the US close.
- The Japanese yen eased from 134.40 yen per US dollar to JPY135.39 and was near JPY135.15 at the US close.
- Global oil prices rose by around 3% on Friday. Commsec’s Craig James writes, “Unrest in Libya continues to restrict global oil supplies. OPEC+ nations meet on June 30 to discuss production quotas.”
- The Brent crude price rose by US$3.07 or 2.8% to US$113.12 a barrel.
- The US Nymex crude price lifted by US$3.35 or 3.2% to US$107.62 a barrel. Over the week Brent crude was flat and Nymex crude fell by US$1.94 or 1.8%.
- Base metal prices fell by as much as 8.3% on Friday with tin down the most while copper fell 0.2%. Investors worry that central bank rate hikes will stifle economic growth and reduce metal demand. Over the week metals fell 1.6-20.2% with aluminium down the least and tin down the most.
- The gold futures price rose by US50 cents or less than 0.1% to US$1,830.30 an ounce. Spot gold was trading near US$1,826 an ounce at the US close. Over the week gold fell by US$10.30 or 0.6%.
- The iron ore futures price fell by US79 cents or 0.6% to US$128.53 a tonne. Over the week iron ore fell by US$2.85 or 2.2%.
Australian market
The best-performing sectors last week were Healthcare, Financials, Consumer Staples and Consumer Discretionary, all up over 3%, followed by Information Technology over 1% higher. The worst-performing sectors included Materials down over 4%, Energy down over 3% and Utilities just in the red.
Best performers in the S&P/ASX top 100 stocks were REA Group Limited (ASX:REA) up over 10%, Block Inc (NYSE:SQ) up over 9% and QBE Insurance Group Ltd up over 7%.
The worst-performing stocks included Mineral Resources Limited and Evolution Mining Ltd (ASX:EVN) down over 8% followed by Northern Star Resources Ltd (ASX:NST) and Fortescue Metals Group (ASX:FMG)Limited, both down over 7%.
What's next for the Australian stock market?
“Two weeks ago, the Australian stock market fell heavily ending the week down 6.74%, while last week it held up well and traded just in the green,” Wealth Within founder and chief analyst Dale Gillham said as he assessed the current state of the market.
“On Monday last week, the All Ordinaries Index fell to a low of 6,581 points and while this is around where I stated the market would find support, it is too early to tell whether the market has stopped falling. If it does fall further, I am confident it will find strong support around 6,200 points and is unlikely to fall further.
“To confirm that the low of 6,581 points on Monday is the end of the current down move, we need to see a sustained upward movement in the All Ordinaries Index over at least the next three weeks.
"Until this occurs, the safest option for investors is to err on the side of caution and to assume that further falls may unfold, and to plan accordingly. Right now, I recommend investors look at the top 50 stocks as many are setting themselves up nicely for the impending rise that is likely to unfold in the second half of this year.”
US markets
Investors seem to be factoring in a 'lighter touch' from the Federal Reserve in its battle against inflation. Common sentiment is that a recession can be avoided.
Aspiriant's managing director for Investment Strategy and Research Dave Grecsek told MarketWatch that the thinking suggests “we really can avoid a recession,” with the Fed potentially needing to become less aggressive in hiking rates to bring down inflation as the economy slows.
With commodity prices falling, there could be a lower peak in the Fed’s interest rate target.
Of course, this is all speculation, however, according to the CME’s FedWatch tool, investors expect the Fed funds rate to peak at between 3.25% and 3.50% in December, down from 3.50% to 3.75% just one week ago.
“We’ve seen a two-week drop in commodity prices and now we are seeing Fed funds futures pricing in rate cuts out in 2023. The thing holding back the market was endless rate hikes, if we’ve found the terminal rate then stocks can make headway here,” Baird market strategist Mike Antonelli said.
Inflation expectations lowered
According to University of Michigan’s final reading on consumer sentiment, inflation five to 10 years out had been revised lower to 3.1%, down from 3.3%.
“Hopes that inflation is peaking and that the economy is still on solid footing has some investors confidently buying up heavily discounted stocks,” said OANDA's senior market analyst for the Americas Edward Moya.
St Louis Federal Reserve president James Bullard said recession talk was premature based on the central bank’s position on jacking up interest rates faster than usual. He said a rapid rise in interest rates was the best way to curb inflation and void a recession.
San Francisco Fed president Mary Daly has also signalled support for another big rate increase in July to slow inflation.
The market is being driven by “this push and pull between inflation risk, recession risk and the Fed’s ability to navigate a path forward in terms of rate policy,” said Plante Moran Financial Advisors chief investment officer Jim Baird.
Investors were trying to work out “how quickly and how far” the Fed will need to go — or will “be able to go” — in terms of further tightening amid evidence the US economy was slowing, he said.
European markets
Followed in the footsteps of other markets and posted solid gains on Friday.
The pan European STOXX 600 index rose by 2.6%, its best session in three months.
The benchmark index rose 2.4% on the week. Gains were broad-based with technology up 3.7% and healthcare up 3.4%.
The German Dax index rose by 1.6% and the UK FTSE index rose by 2.7%.
In London trade, shares of Rio Tinto rose by 1.4% and BHP gained 1.7%.