US stocks posted strong gains for third consecutive week.. Why?

Arabictrader.com – US stock indices posted significant gains during trading in the week ended November 17, continuing their streak of gains for the third straight week, avoiding a slowdown in US inflation and falling incomes and a government shutdown scenario.

At the end of yesterday’s session on Friday, the 100 index rose 0.03% to 15,837.99 points and the S&P 500 index ended at 4,514.03 points. 34,947.29 points in the last session.

The most important factors that affected the performance of the US stock market this week

A strong recovery in risk appetite in equity markets supported US equity gains in the final week as the VIX 500 volatility index hit an 8-week low of 13.80 points, down 2.61% on the week. This reflects a decline in investors’ fears.

The increase in risk appetite in equity markets is due to several factors, the most important of which is the US inflation data. Similarly, US stocks received strong support as a decline in US Treasury yields and the country avoided a government shutdown scenario. Below, we can clarify how these factors supported the US stock market’s strong rally:

First: Inflation is slowing in the US

U.S. inflation slowed significantly last October, with the annual consumer price index hovering around 3.2%, while market expectations were for a drop of just 3.3%, according to official data. The annual US core inflation rate (excluding energy and food prices) fell to 4.0%, while market expectations indicated that inflation would have eased to 4.1%. Last September.

Accordingly, investors’ risk appetite in the US stock market has risen strongly, with markets optimistic that the US Federal Reserve has ended its monetary tightening cycle and will not raise interest rates again at its next meetings. This reflected positively in the performance of US stocks this week.

Second: A decline in US Treasury yields

The recovery in US equity performance came on the back of a decline in US Treasury bond yields of various terms as a result of negative US inflation, which strengthened investors’ reluctance to buy bond yields in favor of equities. For example, losses on US 10-year Treasury yields this week were around 4.58%. Markets believe the Federal Reserve in particular has ended its battle to contain high inflation as investors believe bond yields have already peaked. And interest rates cannot be raised again.

Third: The US avoided a government shutdown scenario

Last week, the US Congress reached an agreement to create a temporary draft law to avoid a government shutdown, which was then referred to the upper chamber – the Senate – for approval. Finally, US President Joe Biden signed the temporary draft law. Yesterday, Friday, it led to a fall in fear. The economic and financial conditions of the world’s largest economic power and its possible negative effects on the US economic growth, in turn, strengthened the performance of US stocks last week.

How has the weekly performance of US stocks been affected by these positive developments?

As a result of the aforementioned positive factors, the weekly gains of the S&P 500 index reached 2.24%, i.e. the index’s gain increased by 98.80 points, and the Dow Jones Industrial Average was estimated at 664.14 points, i.e. 1.94%. Also, the Nasdaq 100 index’s weekly gains were about 1.99%, which means it rose 308.87 points this week.

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