US stocks rallied for the fourth straight day on optimism that the Federal Reserve will be able to curb inflation without tipping the economy into a recession. 

The S&P 500 and the tech-heavy Nasdaq 100 rose the most in two weeks. Commodities from oil to copper jumped as the dollar dropped for the first time in five days. The two- and 10-year Treasury yield curve remained inverted for a third day even as Fed Governor Christopher Waller dismissed recession fears on Thursday. Both Waller and fellow hawk James Bullard, president of the St. Louis Fed, backed raising rates by another 75 basis points this month. 

Investors have been whipsawed in the past two weeks between concern over runaway inflation and the fear of a US recession. The Federal Reserve’s last meeting showed that policy makers resolved to continue raising rates, a promise restated by Bullard and Waller on Thursday. But a flurry of economic data that released this week has hinted at slower growth, calming investors over the pace of tightening needed. All eyes will be on the US jobs report on Friday for further clues about the Fed’s path of rate hikes.

“The number one bugaboo for the markets is inflation and increasingly we are seeing some signs that peak inflation may be in the rear mirror here,” David Dietze, managing principal and senior portfolio strategist for Peapack Private Wealth Management, told Bloomberg Radio. “Now are we where we want to be? Absolutely not. We’re not going to get to 2 per cent anytime soon. The key thing I think from an investor’s point of view is the direction is changing.”

Worries about a brutal recession may have also been alleviated by latest data which showed that consumer spending has remained resilient despite inflation. An inverted yield curve, however, still signals fears of a recession are not over.

“The Goldilocks scenario is that the Fed slows the economy enough to reduce inflation from the current 8.6 per cent, 40 year-high level without tipping us into recession,” said Ellen Hazen, chief market strategist and portfolio manager at F.L.Putnam Investment Management. “And so any data point that suggests that either inflation is coming down faster so that the Fed can take their foot off the brake quicker, or that recession looks less likely through coincident indicators, would give the market relief.”

Commodities were boosted on Thursday as China’s Ministry of Finance is said be considering allowing local governments to sell 1.5 trillion yuan (US$220 billion) of special bonds this year. But the Bloomberg Commodity Spot Index is still down about 21 per cent from a June high.

“We’ve seen a big pull in commodities that’s sort of easing those inflation fears that have been driving the fear of recession and of more aggressive tightening,” said Fiona Cincotta, senior financial markets analyst at City Index Ltd.

Bitcoin rose above the US$20,000 level, but investors are losing confidence in crypto after news that customers of bankrupt broker Voyager Digital Ltd. likely won’t get all their money back.

What to watch this week:

• US employment report for June, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.5 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 2.2 per cent
• The Dow Jones Industrial Average rose 1.1 per cent
• The MSCI World index rose 0.1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro fell 0.2 per cent to US$1.0165
• The British pound rose 0.8 per cent to US$1.2024
• The Japanese yen was little changed at 136.01 per dollar

Bonds

• The yield on 10-year Treasuries advanced eight basis points to 3.01 per cent
• Germany’s 10-year yield advanced 11 basis points to 1.32 per cent
• Britain’s 10-year yield advanced four basis points to 2.13 per cent

Commodities

• West Texas Intermediate crude rose 4.3 per cent to US$102.72 a barrel
• Gold futures rose 0.2 per cent to US$1,739.70 an ounce