US stocks posted their biggest weekly gain in two months

US stocks posted their biggest weekly gains in two months as earnings season got underway and traders took economic indicators showing declining inflation as a sign that the Federal Reserve will not have to be aggressive in raising interest rates this year.

The S&P 500, the blue-chip stock on Wall Street, rose 0.4 percent on Friday, bringing the weekly gain to 2.7 percent. The Nasdaq Composite Index rose 0.7 percent, taking gains over the past five sessions to 4.8 percent.

The indexes posted their biggest weekly gains since mid-November, posting consecutive weekly gains after four weeks of consecutive losses.

The week’s rise was driven by the data shown annually Inflation has fallen in the United States for the sixth consecutive month to 6.5 percent, the lowest CPI reading in more than a year. Signs of slowing price growth built on momentum from last week, when figures from the Bureau of Labor Statistics showed average hourly earnings rose less-than-expected in December, while companies such as Amazon, Meta, Twitter and Goldman Sachs began cutting jobs.

Market prices price in the higher likelihood that the Fed will slow the pace of its monetary tightening at its next meeting in February, with a 0.25 percentage point rise expected to follow December’s half-percentage point increase.

“The Fed is nearing the end of its rate hike cycle, which we think is likely by the end of the first quarter,” said analysts at UBS Global Wealth Management. However, “a tight labor market” means that rates are unlikely to drop anytime soon, with the US unemployment rate at a 50-year low, job vacancies rising and the quitting rate — which correlates with the growth of wages” — too high to justify the Fed’s so-called pivot anytime soon.

Investors are beginning to turn their attention to earnings season, which crept up Friday with a mixed set of results for some of America’s largest financial groups. Net income rose year-over-year at Bank of America and JPMorgan, while Wells Fargo’s quarterly earnings halved from a year ago, mainly due to the hit from billions of dollars in fines. BlackRock, the asset manager, reported a 15 percent drop in revenue.

Although investors are weighing the sector’s medium-term outlook against the debate over a possible recession this year, lenders have benefited widely from the Fed’s aggressive campaign to raise interest rates.

Market concerns about a looming recession led analysts last year to cut their earnings-per-share estimates for S&P 500 companies by 6.5 percent for the fourth quarter, a margin larger than average, According to FactSet.

US government bonds sold off on Friday, with the yield on two-year Treasury notes, which are particularly sensitive to interest rate expectations, rising 0.1 percentage point to 4.23 percent, after peaking at 4.7 percent in November.

Treasury yields tend to fall by 50 to 60 percent [basis points] On average, once the Fed is suspended, and with a final rate hike still expected two months away, that hike seems somewhat premature,” said analysts at JPMorgan.

Even if inflation falls to above 4 percent late this year, allowing for looser monetary policy, “markets will still be challenged by earnings concerns,” said Seema Shah, chief global strategist at Principal Asset Management.

“If inflation plateaus there, the Fed won’t have much room to cut interest rates this year,” Shah added. “Not a great result, either way.”

A measure of the dollar’s strength against a basket of six other currencies fell 0.1 percent on Friday, after falling 0.9 percent in the previous session. The world’s de facto reserve currency has fallen about 10 percent over the past three months.

Elsewhere in equity markets, the European Stoxx 600 index added 0.5 percent, London’s FTSE 100 rose 0.6 percent to near an all-time high, and Germany’s DAX added 0.2 percent.

Hong Kong’s Hang Seng rose 1 percent, and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 1.4 percent. Data released on Friday showed that China’s exports suffered the biggest decline in nearly three years in December, falling 9.9 percent year-on-year in dollar terms.