Stocks rose at the end of a turbulent week as investors weighed the positive easing by China's strict pandemic policy, which has roiled global supply chain chains, against an expected pullback after Thursday's market surge.
The S&P 500 gained 0.9 percent Friday due to a loosening in some pandemic strategies in China. This included shorter quarantine periods for international travelers. However, the government maintained its “zero-Covid” policy. These policies have caused supply chains to be strained and increased inflation, which has weighed on financial markets.
The Hang Seng Index in Hong Kong rose 7.7 percent Friday, marking its best performance since March. Meanwhile, the mainland CSI 300 index rose 2.8 percentage.
The stock market in America was boosted by the rally in China. On Thursday, the S&P 500 saw a 5.5 percent increase, which is the largest gain since April 2020. Investors were hopeful that the Federal Reserve would slow down the pace of interest rates increases that have increased borrowing costs for consumers and companies, which was confirmed by the Consumer Price Index's October price rise.
Paul Christopher, head of global market strategy for Wells Fargo Investment Institute, said that Wall Street trading was “soberer” Friday than Thursday's “euphoria”. The stock market was open for trading Friday, but the bond market was closed on Veterans Day.
Christopher stated, “It's the hangover where we realize yesterday wasn't quite right.”
Principal Asset Management's chief global strategist Seema Shah said that the positive news from China had tempered a expected pullback in stock markets on Friday.
She said, “When you see these big days, the next day is often a downday.” China news is the reason why the market isn’t down today. It is following through.”
Another shock came from the crypto industry on Friday, when the troubled exchange FTX filed for bankruptcy. The rapid fall of the company has caused a major disruption in the crypto market. Bitcoin prices fell by around 20% during the week that began with FTX chief dismissing reports regarding the exchange's financial predicament.
Investors said that the uncertainty surrounding Tuesday's midterm elections was less important than other developments. However, control of Congress is still uncertain as close races continue to count votes.
Tech-heavy Nasdaq Composite rose by 1.9 percent Friday, adding to an increase of more than 7.5% on Thursday. This puts the index on track to its best weekly performance for several months.
Inflation data from Thursday confirmed expectations that the Fed would raise interest rates by half an percent when it meets in December. This is less than the three-quarter-point increases at its previous four meetings. Investors also have lowered their expectations of the Fed raising its policy rate to the maximum point next year.
Fed officials cautioned recently that the Fed's efforts to slow down the economy by raising interest rates is far from finished, as inflation has risen to near 40-year highs.
Markets were flooded with caution on Friday.
Some investors claimed that Thursday's rally was due to investors losing bets that interest rate would rise higher. This pushed Treasury yields, which are sensitive and susceptible to changes in interest rates — lower and pushed stocks higher.
JPMorgan data this week showed that their clients have an increasing number of positions that would be benefited by a rise in Treasury yields. These trades can have the opposite effect and lower yields when they are unwound. This week, the two-year Treasury yield dropped more than 0.3 percent to 4.32 percent.
Inflation has been a problem for investors in the past. From mid-June through mid-August, the S&P 500 rose sharply before Jerome H. Powell's stern warning sent stocks plummeting again. This was despite data showing that inflation continues to accelerate. The S&P 500 has fallen by approximately 17 percent this year.
Ms. Shah stated that the latest inflation data was “a large number, but then reality sets-in.” We need more evidence that inflation is slowing down faster than we expected.