US stocks sustain rally for eighth week in a row on cooling inflation

Reports of a strong economy cement Wall Street’s belief in early interest rate cuts next year

A trader works on the floor of the New York Stock Exchange. The benchmark S&P 500 rose 0.2 per cent on Friday to sit less than 1 per cent of its record close reached in January 2022. AP

Wall Street completed its eighth winning week in a row on Friday after reports showed that inflation is declining and the US economy is on the way up.

The benchmark S&P 500 rose 0.2 per cent to sit less than 1 per cent of its record close reached in January 2022. This has been the longest weekly winning streak for the index since the end of 2017.

The Dow Jones Industrial Average slipped less than 0.1 per cent and the Nasdaq Composite edged 0.2 per cent higher.

For the Nasdaq and the Dow, it marks the longest streak of consecutive weekly gains since the beginning of 2019.

For the year, the S&P 500 is up 23.8 per cent, the Dow is up 12.8 per cent and the Nasdaq is up 43.2 per cent.

Wall Street’s focus was on economic reports released on Friday, most notably the Commerce Department’s Personal Consumption Expenditures (PCE) report, which showed inflation came down to 2.6 per cent in November from 2.9 per cent the month before.

It mirrored other inflation reports for November released earlier in the month.

The data reinforced Wall Street’s belief in early rate cuts next year.

Traders are pricing in a 74.1 per cent likelihood that the US Federal Reserve will implement a 25 basis point rate cut in March, according to the Chicago Mercantile Exchange’s FedWatch tool.

The federal funds rate is sitting within a range of 5.25 per cent to 5.50 per cent at its highest level in more than two decades.

Stock traders have cheered recent signs from the Fed on its rates outlook.

At the end of its policy meeting on December 13, the regulator signalled that it had reached the end of its tightening cycle and hinted at interest rate cuts in the year ahead.

Friday’s data also showed that US consumer spending unexpectedly rose during the month.

Other reports on Friday showed orders for manufactured goods strengthened more than expected in November, sales of new homes weakened and US consumer sentiment improved.

“The numbers looked strong in absolute terms: that’s about everything that the soft-lander camp love to hear – a slowing economy that will allow the Fed to loosen its grip on the monetary policy, but an economy that will avoid entering recession if inflation falls and remains low near the Fed’s 2 per cent target,” Ipek Ozkardeskaya, senior analyst with Swissquote Bank, said.

The US market will be closed on Monday for the Christmas holiday.

The US dollar also hit a near five-month low on Friday. The dollar index has slipped more than 2 per cent over the past two weeks and is on pace to finish the year down just under 2 per cent.

The yield on the 10-year Treasury was at 3.89 per cent. The yield is still down comfortably from October, when it was above 5 per cent.

In the energy market, oil prices eased amid expectations that Angola could increase output after leaving Opec, while worries remained that Houthi attacks on ships in the Red Sea were boosting supply costs.

US crude oil fell 33 cents to settle at $73.56 per barrel, while Brent dipped 32 cents to $79.07.

“Angola decided to leave Opec as the country rejected the production quotas that the group imposed on them,” Ms Ozkardeskaya said.

“But Angola won’t be pumping significantly more outside Opec. Once Africa’s biggest producer, the country’s production collapsed by 40 per cent in eight years due to an unfavourable tax environment and the absence of new investments, and the country pumped just above 1.1 million barrels per day, anyway.

“Therefore, in absolute terms, Angola’s exit won’t change the dynamics for Opec.”

In cryptocurrencies, Bitcoin eased 0.5 per cent to $43,672, just shy of the eight-month high of $44,729 hit earlier this month.