Wall Street bounced back on Friday after a week of few optimistic economic signals.
Analysts described the gain as a classic bounce-back rally based on continued optimism about the state of the economy. All three indices were hit on Wednesday as several leading technology companies posted disappointing financial results. But LPL Financial chief economist Geoffrey Roche said investors now seem to be taking on more risks as a « soft landing » looms large.
« We have an economy with low unemployment, rising wages, falling inflation and the Fed on the cusp of cutting rates, » Roche said.
The bounce-back comes on the back of favorable inflation data, which could increase the likelihood of the Federal Reserve cutting rates in September. Data released on Friday showed the central bank Preferred Inflation Scale It fell to 2.5 percent for the 12-month period to June, providing further evidence that the central bank's rate hike campaign is working. On Thursday, a stronger-than-expected gross domestic product figure showed the U.S. economy grew at a robust 2.8 percent annualized rate in the second quarter, capping two years of solid expansion.
Leading the positive results on Friday was manufacturer 3M, which rose 21 percent after its financial results shattered analysts' estimates.
Elsewhere, telecom giant Charter Communications gained about 15 percent after posting sales numbers that beat Wall Street's estimates.
Strong fundamentals have led to an extension of the market's 2024 rally, analysts say. At the start of the year, the stock market's gains were dominated by a handful of big tech companies known as the « Magnificent 7, » which benefited from the hype surrounding artificial intelligence technology.
The gains are now cutting across industries, said Michael Farr of DC-based investment firm Farr, Miller & Washington. The Russell 3000 index, which measures the most economically weak small-cap stocks, has risen 14 percent since the start of the year, outperforming the Dow.
« That Magnificent is shifting from 6 or 7 to some blue-chip stocks because things other than AI are getting bids, » Farr said.
