Wall Street bounced back on Friday after a tough week following some optimistic economic signals.
The Dow Jones Industrial Average rose 654 points, or 1.6%, to close at 40,589, erasing a steep drop from two days earlier. The S&P 500 rose 1.1% to close at 5,459. The tech-heavy Nasdaq Composite Index rose 1% to close at 17,357.
Analysts described the rally as a classic recovery market fueled by continued optimism about the state of the economy.All three indexes fell on Wednesday after several big technology companies reported disappointing earnings.But Jeffrey Roach, chief economist at LPL Financial, said investors now appear to be taking more risks as a “soft landing” becomes more likely.
“We have an economy with low unemployment, wages rising, inflation slowing and the Fed is about to cut interest rates,” Roach said.
The rebound came on the heels of favorable inflation readings that may raise the odds that the Federal Reserve will cut interest rates in September. Data released on Friday showed that the Fed’s preferred inflation measure slowed to 2.5% in the 12 months ending in June, providing further evidence that the central bank’s rate-hiking campaign is working. Better-than-expected gross domestic product readings were released on Thursday, showing that the U.S. economy grew at a stronger 2.8% annualized rate in the second quarter, capping two years of solid expansion.
Leading the way on Friday was manufacturer 3M, whose shares soared 21 percent after the company reported results that well beat analysts’ expectations.
Meanwhile, telecommunications company Charter Communications Inc. reported revenue that beat Wall Street expectations, sending its shares up about 15 percent.
Strengthening fundamentals are fueling a larger stock market upside in 2024, analysts say. Earlier this year, the stock market rally was dominated by a handful of big technology companies known as the “Magnificent Seven,” which benefited from hype around artificial intelligence technology.
Mr. Pharr said the rally now appears to be spreading across industries. The Russell 3000 index, which tracks small, economically vulnerable stocks, is up 14% this year, outperforming the Dow Jones Industrial Average.
“Other things besides AI are being acquired, and there’s been a shift from the Magnificent Six and Seven to blue chip stocks,” Farr said.
