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U.S. stocks opened higher Friday, poised to close out a fourth weekly advance, extending a rally driven by signs of a slowdown in inflation.
The S&P 500 climbed 0.5% shortly after the opening bell, putting the benchmark stocks gauge on track for its longest winning streak since one that ended in early November . The Dow Jones Industrial Average rose 122 points, or 0.3%, and the Nasdaq Composite added 0.7%.
Investors hope a recent deceleration in consumer-price growth will encourage the Federal Reserve to raise interest rates at a slower pace, which in turn could prevent the economy from tipping into a recession. Lower rates have in recent years boosted prices for stocks, bonds and more speculative assets such as cryptocurrencies.
Still, many money managers caution that it is too soon to say the Fed will ease up in its campaign to quell inflation. Wild cards remain, such as the energy crisis unfolding in Europe, which could boost energy prices globally.
Yields on benchmark 10-year U.S. Treasury notes edged down to 2.844% from 2.886% on Thursday. They have traded below the 3% mark since late July, when money managers began to bet that the Fed would pause rate rises and even begin to reverse them next year, sending Treasury prices higher.
Samy Chaar, chief economist at Lombard Odier, said several factors point to slowing inflation, including a fall in shipping rates and decline in global commodity prices. Another risk that had weighed on stocks—the downturn in China’s economy—also seems to be improving, Mr. Chaar said.
“The big question here is: Is it morphing into a more fundamental kind of rally?” Mr. Chaar said, after the initial pickup in stocks was driven by a rebound from depressed levels.
Mr. Chaar said the risk is that the tight U.S. labor market stops inflation falling below about 3%, which would maintain pressure on the Fed to raise rates higher than many traders expect.
Investors will parse the University of Michigan’s consumer-sentiment survey for evidence of whether higher prices are encouraging consumers to cut back spending. Economists expect the data, due at 10 a.m. ET, to show an improvement from July.
Giving stocks a boost this week: Data showed that the consumer-price index rose 8.5% in July from a year before, down from the 9.1% pace recorded in June. June’s rate of inflation was the fastest since 1981. Producer prices also decreased a seasonally adjusted 0.5% in July from the prior month, down sharply from June and the first decline since April 2020.
Economists at Bank of America Global Research said in a note the CPI data make it likely that the Fed will raise its main interest rate by half a percentage point in September, after two consecutive three-quarter-point increases.
Write to Joe Wallace at joe.wallace@wsj.com
Traders working on the floor at the New York Stock Exchange on Wednesday.
Photo:
Seth Wenig/Associated Press
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