Evidence of a moderating economy helped stocks rally Friday as a sharp slowdown in second-quarter gross domestic product growth fed hopes for an end to rising interest rates.
The Associated Press reported that investors bid shares higher after the Commerce Department said GDP growth tailed off by more than half to a 2.5% annual rate. Although the reading was weaker than forecast, the pace was considered healthy and reinforced beliefs that the Federal Reserve may not need to hike interest rates further.
Wall Street’s optimism overcame signs of soaring inflation and lower consumer confidence. Core consumer prices — excluding energy and food — surged 2.9% last quarter, while employment costs rose a stronger-than-expected 0.9%.
While investors have been spooked by any hint of rising prices, they likely set aside the GDP’s inflation component because recent reports have shown a more benign trend, said Jeff Kleintop, chief investment strategist for PNC Financial Services Group.
Meanwhile, oil prices plunged as energy traders took profits from recent gains on worries about political tension in the Middle East and Nigeria. A barrel of light crude lost $1.24 to $73.30 on the New York Mercantile Exchange.
Investors moved cautiously this week ahead of Friday’s economic news, and analysts say listless trading should continue until the Fed’s Aug. 8 meeting on interest rates. With oil lingering at persistently high levels, investors have been nervous about the Fed’s ability to set rates where they will curb inflation but preserve economic growth.