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

The blue-chip S&P 500 closed 1 percent higher on Friday, leaving the index up 2.9 percent for the week.

That marked the best weekly gain since a 4.7 percent rise in the five sessions through Nov. 8, when Trump’s election victory raised hopes that tax cuts and deregulation would be passed under the incoming administration. will improve corporate America. The tech-heavy Nasdaq Composite added 2.5 percent, 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 sharp rise in profits at the end of last year, fueled by a boom in trading and dealmaking.

Investor sentiment also benefited from figures released this week by the Bureau of Labor Statistics that showed headline annual inflation rose in line with expectations to 2.9 percent in December from 2.7 percent in November. Core inflation, which strips out volatile food and energy costs, unexpectedly fell to 3.2 percent from 3.3 percent the previous month.

This week’s inflation data means sentiment is “back in excited territory” again, said Mike Zigmont, co-head of trading and research at Visdom Investment Group.

For now, “inflation boogie man is no longer a concern (and) good earnings and guidance from reporting banks further encourage the bulls,” he added.

Signs of slower inflation have rekindled investors’ hopes that the US Federal Reserve, whose next two-day policy meeting falls at the end of January, will continue to lower rates in the coming months. .

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

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

The slide stopped this week, however, with the policy-sensitive two-year Treasury yield, which closely tracks interest rate expectations, down from a recent high of 4.42 percent last week. Monday up to 4.27 percent.

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

“The lowered rate risks and improved earnings are a decent mix to change the lowered risk appetite,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

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

Softer inflation numbers in December could reduce the risk of an imminent rate hike, according to Bank of America strategist Aditya Bhave. But strong economic growth, strong consumer spending and a strong labor market nonetheless mean “we maintain our view that the Fed’s tightening cycle is over,” he said. he in a note to clients.