FX.co ★ US stock market ends the week with a very strong rally

US stocks bounced up on Friday as strong earnings from Apple offset the fears that the Fed will act aggressively to curb inflation. The S&P 500 posted its biggest rally since June 2020, while the tech-heavy Nasdaq 100 jumped more than 3%.

"Given recent volatility, there is a hope corporate earnings can stabilize markets," said Lindsey Bell, chief market strategist at Ally. "Investors hope that market fundamentals, like earnings results, can shift the focus away from fears of central bank policy changes and inflation. It might take a lot of good news to change the tone on Wall Street, though," she added.

Markets dipped last week after Fed Chairman Jerome Powell signaled faster tightening, which fueled concerns over geopolitical tensions and slow earnings. Scott Thiel of BlackRock warned that the central bank risks a hawkish policy mistake as it strives to dampen price pressures largely driven by supply chain disruptions. Meanwhile, strategists at the Bank of America declared zero capitulation in stock positioning, and analysts who track EPFR Global data say stock mutual funds and exchange-traded products made $17.1 billion in the week leading up to January 26, the day the Fed announced its policy decision.

But despite fears that Fed tightening will dampen growth, earnings sentiment remained firm. About 80% of companies reported that their earnings beat forecasts, and according to data compiled by Bloomberg, the S&P 500 earnings increased 22% in the fourth quarter, more than twice as fast as the 10-year average

A series of US inflation measures released on Friday underscored the breadth of price pressure and reinforced the Fed's urgent need to start raising rates. The two largest US banks have raised their forecasts for how quickly the central bank will raise its rates this year. The Bank of America projected changes at every meeting, while JPMorgan raised its call to five rate hikes in 2022.