Investors got a reprieve from a painful sell-off as the Dow Jones Industrial Average and the S&P 500 rallied to close their best weeks since November 2020.
The Dow jumped 575.77 points, or nearly 1.8%, to 33,212.96. The S&P 500 rose about 2.5% to 4,158.24. The tech-heavy Nasdaq Composite was the outperformer, helped by strong earnings from software companies and a fall in the 10-year Treasury yield. It was ended the day up 3.3% to reach 12,131.13.
All three of the major averages closed the week higher. The Dow finished up 6.2% for the week and snapped its longest losing streak, eight weeks, since 1923. The S&P 500 is 6.5% higher and the Nasdaq is up 6.8% on the week. Both indexes ended seven-week losing streaks. A chunk of the week's gains came Thursday and Friday, when all three of the averages rallied as strong retail earnings and a slowing inflation report lifted sentiment.
"We're taking a breather here and making some adjustments in the market to allow for that," Tom Martin, senior portfolio manager at Globalt Investments, told CNBC. "We have come a long way down pretty fast and if we can stabilize here then the declines we've seen might be all that's needed, or something close to that."
A report showing inflation slowing a bit helped give stocks a boost on Friday. The core personal consumption expenditures price index rose 4.9% in April, down from the 5.2% pace seen the previous month. This particular report is watched closely by the Federal Reserve when setting policy.
Investors on Friday also continued to parse through retail earnings. Ulta Beauty shares were up nearly 12.5% after the company reported better-than-expected quarterly results, while Gap added 4.3% despite slashing its profit guidance.
"The consumer appears to have a 'barbell' approach to spending: low-end necessities and higher-end experiences/luxury items are doing fine, while general merchandise spending is being delayed, i.e., getting one more year out of that worn-down patio furniture is okay," Wells Fargo's Christopher Harvey said Friday.
"This week, various retailers started to balance the macro narrative, with the demise of the consumer now appearing to have been greatly exaggerated," he added.
Tech stocks were among the top gainers Wednesday. Software company Autodesk rose 10.3% after reporting strong earnings for its most recent quarter. Dell Technologies jumped 12.8% on earnings, and chipmaker Marvell advanced 6.7%. Zscaler and Datadog were also higher Friday, up about 12.6% and 9.4%, respectively.
The moves came as investors assessed the sustainability of this week's rally, and whether it's a relief bounce or does it mark the bottom of this year's long sell-off.
Still, the averages are well off their highs, with the Nasdaq Composite still solidly in bear market territory and the S&P 500 having briefly dipped more than 20% below its record last week.
The Nasdaq now sits about 25.2% from its record, while the S&P 500 and Dow are off by 13.7% and 10.1%, respectively.
Jeff Kilburg, chief investment officer of Sanctuary Wealth, said he looks to the Treasury market as a "beacon of light" for the stock market. The 10-year Treasury yield has fallen below 2.75% from a peak that exceeded 3% this year.
"I'm not calling it a bear rally, just a repositioning. A lot of people got too pessimistic," said Kilburg said. "I go back to interest rates. When you saw Treasurys have that pop above 3%, it wasn't sustainable. When it came under 2.75% that allowed equities to heal, that was the all-clear short term to come back into equities."