US stocks on track to post best week since Donald Trump’s election win

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US stocks are on track for their best week since Donald Trump’s election victory, boosted by strong bank earnings and softening core inflation data, raising the prospect of further interest rate cuts this year.

The blue-chip S&P 500 rose 1.2 percent on Friday, with the index up 3.1 percent for the week.

That would mark its best weekly gain since a 4.7 percent gain in the five sessions through Nov. 8, when Trump’s election win raised hopes that tax cuts and deregulation under the incoming administration would boost corporate America. The tech-heavy Nasdaq Composite is set to add 2.7 percent, marking its best weekly gain since early December.

Last week’s rally came as banks including JPMorgan Chase, Goldman Sachs and Citigroup kicked off the U.S. earnings season by reporting a strong rise in profits late last year, driven by a boom in trading and dealmaking.

Investor sentiment also benefited from figures released this week by the Bureau of Labor Statistics showing that headline annual inflation rose to 2.9 percent in December from 2.7 percent in November, as expected. Core inflation, which excludes volatile food and energy costs, unexpectedly fell to 3.2 percent from 3.3 percent a month ago.

Mike Zygmont, co-head of trading and research at Wisdom Investment Group, said this week’s inflation data meant sentiment had “flipped back into bullish territory”.

For now, the “inflation boogie man has nothing to worry about [and] Good earnings and guidance from reporting banks further encouraged the bulls,” he added.

Signs of slowing inflation have revived hopes among investors that the US Federal Reserve, whose next two-day policy meeting will take place at the end of January, will keep rates low in the coming months.

Blockbuster jobs numbers released last week left some market participants calling for an end to the central bank’s easing cycle or even interest rate hikes to offset potential inflationary strength in the world’s largest economy.

Stocks have also come under pressure in recent weeks amid a global bond selloff centered on the United States.

The slide halted this week, however, as the policy-sensitive two-year Treasury yield, which closely tracks interest rate expectations, fell to 4.26 percent from Monday’s recent high of 4.42 percent.

The 10-year yield — a benchmark for global borrowing costs — fell to 4.61 percent from about 4.8 percent over the same period. Yields fall as prices rise.

“Low rate risk and improved earnings create a decent mix to reinvigorate risk appetite,” said Florian Yelpo, head of macro at Lombard Odier Investment Managers.

“The second half of January could see a reversal of trends that marked its inception: lower rates leading to higher equities,” he added.

According to Bank of America strategist Aditya Bhav, December’s soft inflation number could reduce the risk of an imminent rate hike But resilient economic growth, robust consumer spending and a robust jobs market nonetheless mean “we maintain our view that the Fed’s tightening cycle is over,” he said in a note to clients.