Equities Rally as Economic Optimism Grows
Global equities rose on Friday, with Wall Street and European markets posting strong weekly gains, as upbeat economic data and corporate earnings boosted investor confidence ahead of the U.S. presidential inauguration.
The MSCI global stock index climbed 0.81%, while Wall Street’s major indexes extended gains:
- Dow Jones Industrial Average (.DJI): +371.84 points (0.86%) to 43,526.27.
- S&P 500 (.SPX): +66.28 points (1.12%) to 6,003.70.
- Nasdaq Composite (.IXIC): +318.89 points (1.65%) to 19,656.98.
Phil Orlando, Chief Equity Strategist at Federated Hermes, commented:
“There’s an expectation that the economy is not as weak, and inflation is not as big a problem as previously thought.”
Economic Data Boosts Confidence
Encouraging economic reports fueled optimism:
- U.S. manufacturing output increased 0.6% in December, following an upwardly revised 0.4% gain in November.
- Single-family homebuilding surged to a 10-month high, signaling resilient construction activity despite high mortgage rates.
“Given the oversold nature of the market, we’ve enjoyed a nice bounce, but we’ll see if it holds after the White House transition,” Orlando added.
Federal Reserve Rate Cut Uncertainty
Despite softer-than-expected core inflation data on Wednesday, some investors doubt the Federal Reserve will cut rates as aggressively as previously anticipated.
- Fed Governor Christopher Waller indicated that three to four rate cuts remain possible in 2025 if economic conditions weaken.
- U.S. Treasury yields rose, reversing earlier declines:
- 10-year yield: +0.7 basis points to 4.613%.
- 30-year bond yield: 4.8483%, up from 4.845%.
- 2-year note yield: +3.6 basis points to 4.274%.
Investors Cautious Ahead of Trump’s Inauguration
While markets rallied this week, analysts remain cautious about post-inauguration volatility, as Trump’s economic policies on tariffs and immigration remain uncertain.
Anthony Saglimbene, Chief Market Strategist at Ameriprise, noted:
“We’ll see what happens next week. I wouldn’t put a ton of faith in this rally holding until we get more clarity on trade and fiscal policies.”
Trump’s Treasury Secretary pick, Scott Bessent, made key remarks:
- The U.S. dollar should remain the world’s reserve currency.
- The Federal Reserve should remain independent.
- The administration is ready to impose stricter sanctions on Russia’s oil sector.
- He warned of an “economic calamity” if Trump’s 2017 tax cuts expire.
Currency Markets: Dollar Strengthens, Yen Eyes BOJ Rate Hike
The U.S. dollar rebounded after four days of declines, rising 0.34% to 109.34, while:
- Euro fell 0.21% to $1.0276.
- Japanese yen weakened 0.66% to 156.15 per dollar.
- British pound (GBP) declined 0.6% to $1.2165, following weaker-than-expected UK retail sales data.
Commodities Mixed: Oil Drops, Gold Sees Weekly Gains
Oil prices declined but remained on track for a fourth consecutive weekly gain:
- U.S. crude settled at $77.88 per barrel (-1%).
- Brent crude fell 0.62% to $80.79 per barrel.
Gold initially dipped but remained above $2,700 per ounce as investors hedged against post-inauguration volatility:
- Spot gold dropped 0.4% to $2,702.85 an ounce.
- U.S. gold futures edged up 0.19% to $2,751.60 an ounce.
Looking Ahead
With strong economic data and earnings supporting markets, investors will closely monitor:
- Trump’s inauguration speech and executive orders.
- Potential tariff and trade policy announcements.
- The Federal Reserve’s interest rate outlook.
While stocks have surged this week, analysts remain wary of potential volatility in the coming days.
