US stocks have their best week since Donald Trump’s election victory

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U.S. stocks had their best week since Donald Trump’s election victory, boosted by strong bank profits and weaker underlying inflation data that raised the chances of further interest rate cuts this year.

The blue-chip S&P 500 index closed 1 percent higher on Friday, taking the index up 2.9 percent for the week.

That was the best weekly gain since a 4.7 percent rise in the five sessions ending Nov. 8, as Trump’s victory raised hopes that tax cuts and deregulation under the new administration would boost American businesses. The tech-heavy Nasdaq Composite gained 2.5 percent, its best weekly gain since early December.

Last week’s rally came as banks such as JPMorgan Chase, Goldman Sachs and Citigroup opened the US earnings season reports strong increases in profits over the last year, driven by a boom in trade and business transactions.

Investor sentiment also benefited from numbers released this week by the Bureau of Labor Statistics that showed the headline figures for the year inflation as expected, from 2.7 percent in November to 2.9 percent in December. Core inflation, which excludes fluctuating food and energy costs, unexpectedly fell to 3.2 percent from 3.3 percent the previous month.

This week’s inflation data meant sentiment had once again “turned into excited territory,” said Mike Zigmont, co-head of trading and research at Visdom Investment Group.

“The inflation boogie man is no longer a concern for now (and good earnings and forecasts from reporting banks have further encouraged the bulls”), he added.

Signs of easing inflation have revived investors’ hopes that the Federal Reserve, whose next two-day policy meeting is in late January, will continue cutting interest rates Tariffs in the coming months.

Blockbuster jobs data released last week had led some market participants to call for an end to the central bank’s easing cycle or even a rate hike to offset the potential inflationary strength of the world’s largest economy.

Stocks have also come under pressure in recent weeks amid a global bond sell-off with a focus on the United States.

However, the decline stalled this week as the policy-sensitive two-year Treasury yield, which closely reflects interest rate expectations, fell to 4.27 percent from a recent high of 4.42 percent on Monday.

The 10-year yield – a measure of global borrowing costs – fell from about 4.8 percent to 4.61 percent over the same period. Yields fall as prices rise.

“Reduced interest rate risks and improved returns form a good mix to revive subdued risk appetite,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

“The second half of January could see a reversal of the trends that marked its beginning: lower interest rates leading to higher stocks,” Ielpo added.

According to Bank of America strategist Aditya Bhave, weaker inflation numbers in December could reduce the risk of impending interest rate hikes. But robust economic growth, strong consumer spending and a robust labor market still mean that “we continue to believe the Fed’s rate-cutting cycle is over,” he said in a note to clients.