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Wall Street stocks ended another tumultuous week with a brisk late rally as a top Federal Reserve official said the US central bank was prepared to intervene if strains in markets grew, and traders remained fixated on tariffs.
The blue-chip S&P 500 rose 1.8 per cent on Friday, bringing its gains for the week to 5.7 per cent — its best weekly rise since November 2023. Still, it is down 4.4 per cent this month.
Donald Trump’s abrupt swerves on tariffs drove intense volatility in markets this week. The US president’s decision on Wednesday to pause big “reciprocal” tariffs on most countries besides China sent the S&P 500 surging 9.5 per cent in its best day since 2008.
But selling resumed on Thursday as Wall Street banks warned the big duties on China could still tip the US into a recession. US government debt and the dollar have also been swept up in the selling as the erratic policymaking in Washington has driven investors from American assets.
A rally in stocks that began on Friday morning picked up momentum after Susan Collins, head of the Boston Fed, told the Financial Times that the central bank was “absolutely” prepared to help stabilise markets if they became disorderly.
A sell-off in Treasuries also eased, with the 10-year yield up 0.07 percentage points at 4.47 per cent on Friday afternoon, compared with a rise of 0.19 percentage points earlier in the session. The move in Treasury yields also helped bolster the stock market.
As stocks recovered on Friday, the Vix, a measure of expected volatility that is often known as Wall Street’s “fear gauge”, fell to session lows.
Despite the rise in equities on Friday, investors remain deeply concerned about the risks tariffs either slow growth or push the US into recession.
“Recession risks are real,” said James Knightley, chief international economist at ING. “Tariffs will put up prices and squeeze spending power, government spending cuts are raising concerns about jobs and entitlements and falling stock and bond markets are eroding household wealth.”
John Williams, head of the New York Fed, said on Friday that US growth would slow “considerably” this year, potentially less than 1 per cent. He also warned that tariffs could push inflation up to 4 per cent, from less than 3 per cent currently, and push up unemployment.
He added that “a pervasive sense of uncertainty is becoming increasingly evident, especially in so-called soft data such as surveys and information from business contacts”.
“Why is it that [Treasury yields] are going up? Is it because foreign investors are selling? Is it because of general risk reduction? Is it because of the basis trade? All of these things are happening. It is a perfect storm for the bond market,” said Torsten Sløk, chief economist at Apollo Global Management.
In commodities, oil prices settled up more than 2 per cent on Friday after US energy secretary Chris Wright said the US could curb Iran’s oil exports as part of its efforts to prevent Tehran from developing nuclear weapons.
Brent crude futures settled up $1.43 at $64.76 a barrel, a rise of 2.26 per cent. West Texas Intermediate, the US benchmark, settled up 2.3 per cent at $61.50, ending a tumultuous week on oil markets as investors assessed the impact of an US-China trade war on the global economy.
Wright’s comments on Iran caused oil prices to rebound from earlier losses, as markets considered how US action against Iran could reduce global oil supplies. Wright is on a two-week trip to the Middle East.