Stocks Rally, Erasing Losses From a Turbulent Week

Wall Street finally found a foothold on Friday, rebounding from days of back-to-back declines with its biggest gain in 18 months as investors grabbed on to glimmers of good news: a strong earnings report from Apple and data on wage growth that came in lower than expected.

The S&P 500 rose 2.4 percent, its biggest one-day jump since June 2020, while the technology-heavy Nasdaq composite rose 3.1 percent. Friday’s gain snapped a three-day streak of losses and left the S&P 500 up 0.8 percent for the week, its first weekly gain this year.

The rally came relatively late in the day and was a remarkable shift in tone after stocks had fallen in early trading and struggled to hold onto gains in the afternoon. Stocks zigzagged between gains and losses every day this week as investors tried to assess how quickly the Federal Reserve is likely to raise interest rates to combat inflation.

Economists are virtually certain that the central bank will start increasing interest rates in March, but the question now is by how much and how often will it do so. As the answer shifted this week, so did Wall Street’s outlook.

On that front, some data released on Friday was seen positively. The Employment Cost Index, a measure of wages and salaries in the United States that is closely watched by the Fed, rose 1 percent in the three months ending in December compared with the prior quarter, the government said. That was a slowdown from the previous three months and lower than the rate economists had expected, factors that might take pressure off the Fed, some analysts said.

The yield on 10-year Treasury notes, a proxy for investor expectations about rates, dipped slightly.

Apple also gave markets a big lift after reporting a record profit of $34.6 billion in the last three months of 2021 on Thursday. Tim Cook, Apple’s chief executive, said he expected supply chain problems in the current quarter to be less than they were during the holidays.

Apple’s better-than-expected quarter could ease fears that the tech industry’s long period of fast growth may be coming to an end, and shares of some other big technologies — which led the stock market sell-off this month — also climbed. Alphabet rose 3.4 percent, while Meta rose 2.4 percent, and Amazon climbed 3.1 percent.

The tech giants are so large that gains in their shares can help pull the broad benchmarks higher.

“Apple being able to handle these supply chain problems is very positive,” said Edward Moya, a market analyst at OANDA, a foreign currency exchange and brokerage firm. “You’re going to see that passed on to several other companies.”

Separately, Visa rallied 10.6 percent and was the best-performing stock in the S&P 500 after it reported that payment volumes jumped 20 percent in the final three months of the year. Mastercard, which also reported a jump in spending, climbed 9.1 percent.

That’s not to say that Wall Street’s biggest concerns have suddenly evaporated. Companies are forecasting further headwinds coming in 2022 as wages rise and as supply chain bottlenecks persist, and the combination of these elements has raised fears of a drop in economic growth, corporate profits and the longer-term appetite for stocks.

The S&P 500 is still down 7 percent for January, its worst monthly showing since the since the coronavirus pandemic stalled the world’s economies.

Investors were spooked early in January by a big jump in government bond yields and then were disappointed by corporate earnings reports or forecasts for the year from companies as varied as Goldman Sachs and Netflix.

On Thursday, for example, shares of the electric vehicle maker Tesla slid more than 11 percent, weighing on the broader S&P 500, after the company said supply chain problems would put a constraint on production in the coming year. Tesla rebounded 2.1 percent on Friday, but is still down 20 percent for the month.

And there was some worrisome economic news on Friday. The University of Michigan reported that its index measuring consumer sentiment fell in January to its lowest level since November 2011. The rapid spread of the Omicron variant, persistent inflation and the increased market volatility were some of the reasons consumers were less upbeat about the economy, the university said.

But Wall Street’s main concern all month long has been the Fed, which is expected to raise interest rates several times this year as it looks to cool down rising consumer prices.

On Friday, the Labor Department said that the Personal Consumption Expenditures index, the Fed’s preferred measure of inflation, rose 5.8 percent in the year through December, the fastest jump since 1982.

The concern on Wall Street is that interest rates will climb too quickly, hurting corporate profits, hindering consumer demand and discouraging investments in stocks.

“With inflation sky high and the Fed potentially looking to hike rates four times across the year, if not more, the markets fear that the U.S. economy will struggle to absorb such an aggressive approach from the U.S. central bank,” said Fiona Cincotta, a markets analyst at Forex.com.

This worry has been most obvious in shares of technology companies, and even after Friday’s rally the Nasdaq composite, is down 12 percent in January — on track for its biggest drop since October 2008.

Though the broader S&P 500 has fared better, in large part because a rally in oil prices has lifted shares of energy companies, it remains close to a critical threshold: a drop of 10 percent from its last record, which on Wall Street is called a correction. A drop of that size is considered a marker of investors’ swiftly changing attitudes about prospects for the economy.

“A correction signifies that the economy has really lost momentum,” said Mr. Moya. After Friday’s rally, the S&P 500 was down 7.6 percent from its Jan. 3 high. The Nasdaq composite is already in a correction, however, and is down 14 percent from its record, which it reached in November.

So, some analysts cautioned against reading too much into Friday’s bounce.

“Markets were up today, driven by corporate earnings and perhaps some bargain hunting,” said Greg McBride, the chief financial analyst at Bankrate.com. “But one in a row is not a streak, and it could be different on Monday.”

Eshe Nelson contributed reporting.