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US stocks climbed on Friday, rebounding from a heavy sell-off earlier in the week sparked by a hawkish message from the Federal Reserve.
The S&P 500 shrugged off early declines to close 1.1 per cent higher.
On Wednesday, the Fed triggered an equity rout when it scaled back the number of interest rate cuts it expected next year amid signs of stubbornly high inflation. But the central bank’s preferred measure of price pressures came in slightly lower than expected on Friday at 2.4 per cent for November, helping to ease some of the concerns in markets.
“People felt we’d bottomed, then we got a couple of positive catalysts,” said Michael O’Rourke, chief markets strategist at broker JonesTrading, referring to the inflation figures and growing hopes that Washington would reach a deal to avoid a government shutdown.
The S&P is 24 per cent higher this year, but below levels earlier in December that had been set to deliver Wall Street’s best year in five.
Barclays strategist Emmanuel Cau described the pullback earlier this week as a “reality check” following frenzied buying of speculative stocks and assets such as bitcoin, which have surged following Donald Trump’s US election victory in expectation of lower taxes and lighter regulation.
Ten-year Treasury yields slipped 0.05 percentage points to 4.51 per cent on Friday after the inflation figures, having earlier this week touched a six-month high of 4.59 per cent.
In comments that highlighted the debate within the Fed over the path of rates, Cleveland Fed president Beth Hammack said on Friday she would prefer to keep borrowing costs on hold until there was “further evidence that inflation is resuming its path” to the central bank’s 2 per cent target.
But New York Fed president John Williams pushed for further cuts, describing current monetary policy as “pretty restrictive”.
Wall Street’s Friday bounce came too late to reverse all the pain for European stocks, however, with the region-wide Stoxx Europe 600 closing down 0.9 per cent.
A fall of more than 20 per cent for Novo Nordisk dragged down the index after the Danish drugmaker reported disappointing results from tests of its latest obesity drug.
Trump added to the mood of caution early in Europe with a message on his Truth Social platform warning the EU it must commit to buying US oil and gas on a large scale or face tariffs.
“The market has been unwilling to believe or price that Trump is serious about implementing tariffs,” said Gerry Fowler, head of European equity strategy at UBS. “Now that his comments are directed more specifically to Europe, investors are taking note.”
