The U.S. stock market surged strongly last Friday (19th), closing the week's trading on a high note. The S&P 500 and the Dow Jones Industrial Average posted their largest weekly percentage gains since early November 2024, and the Nasdaq also had an impressive performance, marking its best week since early December 2024. Investors remain optimistic about a range of policy changes from the incoming Trump administration, and there is increased anticipation of an early interest rate cut by the Federal Reserve.
Data Eases Inflation Concerns, Fed Policy Expectations Shift
Several economic data releases this week have eased market fears of rising inflation. The U.S. Department of Commerce reported on Friday that single-family housing starts reached a 10-month high. However, rising mortgage rates and an excess of new home inventory could pressure future demand. Meanwhile, manufacturing data showed a surge in output last month, further indicating economic resilience.
Federal Reserve Board member Waller noted last Thursday that with inflation pressures gradually easing, the Fed might cut rates sooner and more quickly than expected. According to London Stock Exchange Group (LSEG) data, the market widely expects the Fed to keep rates steady at its policy meeting later this month, and there is a greater than 50% chance of at least a 25 basis-point cut by June.
Trump's New Policies and Market Boost
With Trump set to assume the presidency on Monday, the market has turned its attention towards him. Despite potential inflation pressures from policies like tariffs, which could slow the pace of Fed rate cuts, investors remain optimistic about his fiscal policies. Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, stated: "Economic growth and corporate earnings at the start of this year are much stronger than in recent years. Despite uncertainties in fiscal and monetary policy, market performance has been encouraging."
Notably, this week's corporate earnings season got off to a good start, particularly with positive reports from major banks boosting the stock market. The S&P 500 Banks Index rose 7.41% last week, becoming a focal point in the market.
Bond Market Performance and Sector Divergence
In the bond market, the yield on the benchmark 10-year U.S. Treasury note rose 1.3 basis points to 4.619% on Friday, retreating from the 14-month high of 4.809% reached earlier this week. This trend further reflects market confidence in a potential early Fed rate cut.
In the stock market, nine out of the 11 sectors in the S&P 500 advanced, with the consumer discretionary sector leading the gains, rising by 1.7%. However, the healthcare and real estate sectors saw declines.
Outlook
As the presidential inauguration of Trump approaches, the U.S. market will resume trading after the Martin Luther King Jr. Day holiday. Investors will continue to focus on the direction of Trump's new policies and their further impact on the market, as well as the Fed's policy adjustments. Market analysts expect U.S. stocks may experience short-term volatility, but positive economic data and corporate performance provide some support for the market.
