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Market Snapshot: S&P 500 ends at biggest gain since May 2020, Dow jumps more than 800 points as U.S. stocks snap three weeks of losses

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All three major U.S. stock benchmarks climbed sharply Friday afternoon, with the technology-heavy Nasdaq Composite leading gains, as investors reassessed the expected path of Federal Reserve interest-rate hikes.

How are stocks indexes trading?

The Dow Jones Industrial Average
DJIA,
+2.42%

gained about 675 points, or 2.2%, to nearly 31,352.

The S&P 500 SPX rose almost 95 points, or 2.5%, to 3,890.

The Nasdaq Composite
COMP,
+2.76%

added about 290 points, or 2.6%, to trade around 11,522.

On Thursday, the Dow industrials
DJIA,
+2.42%

climbed 194.23 points, or 0.6%, to end near session highs at 30,677.36, after moving between gains and losses. The S&P 500 
SPX,
+2.69%

rose 1% to end at 3,795.73. The Nasdaq Composite
COMP,
+2.76%

 increased 179.11 points, or 1.6%, closing at 11,232.19.

For the week, the Dow is heading for a 4.9% gain, while the S&P 500 is on track to rise 5.9% and the Nasdaq is on pace to advance 6.7%, according to FactSet data, at last check.

What’s driving markets?

U.S. stocks are higher Friday afternoon, with all three major benchmarks heading for weekly gains.

The market now seems to be interpreting recent signs of slowing growth as a reason for the Federal Reserve to potentially have “a lighter touch” in its battle with inflation, said Dave Grecsek, managing director for investment strategy and research at Aspiriant, in a phone interview Friday. The thinking seems to be that maybe “we really can avoid a recession,” he said, with the Fed potentially needing to become less aggressive hiking rates to bring down inflation as the economy slows.

Commodity prices have been falling recently, and judging by Fed funds futures, investors now see a lower peak in path of the Fed’s benchmark interest-rate target.

Investors expect the Fed funds rate to peak at between 3.25% and 3.50% in December, down from 3.50% to 3.75% one week ago, according to the CME’s FedWatch tool. Furthermore, investors now expect the Fed to start cutting rates roughly one year from today.

“We’ve seen a two week drop in commodity prices and now we are seeing Fed funds futures pricing in rate cuts out in 2023. The thing holding back the market was endless rate hikes, if we’ve found the terminal rate then stocks can make headway here,” said Mike Antonelli, a market strategist at Baird.

Read: ‘Cyclical growth’ could lead 10% ‘relief rally’ for S&P 500 this summer, says Stifel’s Barry Bannister

Meanwhile, the University of Michigan’s final reading on consumer sentiment showed expectations for inflation five to 10 years out had been revised lower to 3.1%, down from 3.3% in an earlier reading.

“Hopes that inflation is peaking and that the economy is still on solid footing has some investors confidently buying up heavily discounted stocks,” said Edward Moya, senior market analyst for the Americas at OANDA, in an emailed note Friday.

St. Louis Federal Reserve president James Bullard said Friday at a UBS conference in Switzerland the U.S. has a better chance of avoiding a recession if the central bank jacks up interest rates faster than usual to try to tame the hottest inflation in 40 years. He also said that recession talk is premature.

Read: Bullard Fed’s says rapid rise in interest rates now is the best way to avoid recession later

In economic data released Friday, a gauge of new-home sales for May came in stronger than expected. San Francisco Fed President Mary Daly is scheduled to speak at 4 p.m. Eastern Time.

Some market strategists also attributed the bounce in stocks this week to technical factors after the main benchmarks tumbled last week. Meanwhile, the rebalancing of the Russell U.S. equity indexes after the market’s close Friday could result in a surge of trading volume heading toward the closing bell.

Read: Don’t trust the stock-market bounce until S&P 500 is back above 3,800: analysts

Which companies are in focus?

FedEx Corp.
FDX,
+6.60%

shares rallied 7.2% after the company shared strong profit and sales guidance for the rest of the year, while reporting higher-than-expected quarterly profits.

Zendesk Inc.
ZEN,
+27.88%

shares were up more than 28% on reports the company is headed for a $10 billion acquisition.

Cruise line and resort stocks were up Friday, with Norwegian Cruise Line Holdings
NCLH,
+15.14%

up around 14%, Carnival Corp.
CCL,
+11.61%

rising 11%, Royal Caribbean Group
RCL,
+15.17%

soaring 15%, Wynn Resorts Ltd.
WYNN,
+11.00%

jumping 11% and MGM Resorts International
MGM,
+10.43%

up 10%. The moves follow Carnival’s latest earnings report.

How are other assets faring?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.127%

was up 5 basis points at 3.12%. Yields and debt prices move in opposite directions.

The ICE U.S. Dollar Index
DXY,
-0.27%
,
a measure of the greenback’s strength against a basket of rivals, was off 0.2%.

In oil futures
CL.1,
+3.04%
,
West Texas Intermediate crude for August delivery
CLQ22,
+3.04%

was up 2.7% at around $107.05 a barrel.

Gold futures
GC00,
-0.07%

expiring in August were down 0.2% at around $1,832.70 an ounce.

In European equities, the STOXX Europe 600
FXXP00,
+0.17%

closed 2.6% higher Friday for a weekly gain of 2.4%. London’s FTSE 100
UKX,
+2.68%

index rose 2.7% Friday, rising by the same percentage for the week.

In Asia, the Shanghai Composite ended 0.9% higher Friday, while Hong Kong’s Hang Seng Index gained 2.1% and Japan’s Nikkei 225 index rose 1.2%.

-Barbara Kollmeyer contributed to this report.

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