Global stocks finish strongest weekly run for nine months

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Global stocks have recorded their best week since November as volatility eased and investors shook off recent fears that the US was veering towards a recession.

Equity markets around the world have rebounded sharply from a rout earlier in the month, buoyed by a reassuring run of US data that pointed to resilient consumers and falling inflation.

Wall Street’s S&P 500 index broke a four-week losing streak to close the week up 3.9 per cent, adding 0.2 per cent on Friday for its strongest showing since November.

“A lot of the fear and trepidation has been taken out,” said Joe Mazzola, head trading and derivatives strategist at Charles Schwab. “The data are showing that the US economy is slowing, but that’s to be expected two years into a rate-hike cycle. It’s just when [a slowdown] starts to actually manifest itself [that] people get nervous.”

The gains left the blue-chip benchmark just 2 per cent below its record high, reached a month ago.

Japanese stocks — which bore the brunt of the global sell-off at the start of August — surged 3 per cent on Friday for a weekly gain of 7.9 per cent while the Stoxx Europe 600 index added 0.3 per cent to stand 2.4 per cent higher.

The MSCI World index of global developed market stocks — calculated daily — was also on track for its best week since early November.

Investors were on Friday looking ahead to the Federal Reserve’s upcoming Jackson Hole symposium for more clues on the central bank’s thinking about the direction of interest rates.

“Our expectations are for [Fed chair Jay] Powell to more clearly signal that we’ll see a September cut and offer greater context for what the Fed envisions for the pace of forward rate reductions,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

This week’s market recovery was aided by data that suggested the US economy was holding up better than had been feared. Inflation figures on Wednesday showed the annual rise in the consumer price index eased below 3 per cent for the first time since March 2021 while, on Thursday, strong US retail sales and lower than expected new jobless claims boosted investor confidence.

On Friday a gauge of consumer confidence also came in stronger than forecast, edging above the eight-month low it hit in July. The Vix index of volatility, dubbed Wall Street’s “fear gauge”, slipped below 15, having hit a four-year high of 65 earlier in August amid the sell-off.

“The moves over the last couple of weeks demonstrate how market narratives can swing based on single data points and we could see more volatility ahead,” said Wei Li, global chief investment strategist at BlackRock.

Fed funds futures on Friday implied investors had fully priced in three quarter-point interest rate cuts by year-end, and saw a strong possibility of an additional one. Less than two weeks ago, recession fears had investors betting on a drastic half-point cut as soon as next month.

US two-year bond yields, which closely track rate expectations, ended Friday at 4.05 per cent, up 0.39 percentage points from their recent low on August 5. Yields move inversely to prices.