Traders decided that the stock market has suffered enough, at least for now.
After a two-day plunge, stocks ended the week with an advance on Friday, suggesting that Wall Street may be weaned from the Federal Reserve’s easy money after all.
“Saner heads are prevailing,” said Jim Dunigan, chief investment officer at PNC Wealth Management. “People are looking a little deeper into the message from the Fed — the economy is getting better,” he said. “At the end of the day, that’s a positive.”
The Fed’s move also pushed up the yield on the 10-year Treasury note to the highest level in almost two years as investors bet that U.S. interest rates will rise.
Investors had known that sooner or later the Fed would quit pumping $85 billion per month into the U.S. economy.
That money has been a big driver behind the stock market’s bull run in the past four years. It led to low interest rates that encouraged borrowing for everything from factory machinery to commercial airplanes to home renovations. Has the economy been great? No. Unemployment is still high and U.S. growth has been anemic. But it could have been worse. Investors were confident enough in a growing economy that the Standard & Poor’s 500-stock index hit an all-time high of 1669 on May 21.
Then on Wednesday, the Fed said it would aim to turn off that spigot by the middle of next year as long as the economy is strong enough.
Even though investors knew it was coming did not mean that they liked it. The Dow dropped 560 points on Wednesday and Thursday.
Investors recovered their mojo Friday. The Dow Jones industrial average rose 41.08 points, or 0.3 percent, to close at 14,799.40. The S&P 500 index rose 4.24 points, or 0.3 percent, to close at 1592.43.
The gains were led by the kinds of stocks that investors favor when they want to play it safe. Makers of consumer staples, utilities and health-care companies rose the most of the 10 industries in the S&P 500 index. The only two categories that fell were technology stocks and companies that make basic materials.
Friday’s gain was not enough to erase the market’s loss for the week. The S&P 500 fell 2.1 percent for the week, and the Dow was down 1.8 percent. Stocks have fallen two weeks in a row, and four of the past five.
The real question will be whether the sell-off continues next week, said Frank Fantozzi, chief executive of Planned Financial Services. The market’s swoon this week appears to be more of an adjustment than the beginning of a long-term rout. “If the flow out of equities starts to increase, this might be the pullback we’ve been waiting for,” he said.