Stocks Add to Weekly Gains as Sentiment Calms

U.S. stocks continued to advance in afternoon trading, adding to weekly gains for major indexes on speculation that the Federal Reserve won’t raise interest rates beyond peak levels already priced in by markets.

The S&P 500 and the Nasdaq 100 rose more than 1%, pushing higher even after data earlier in the session highlighted resilience in the service sector.

Sentiment remained upbeat as some investors deduced that data have come in strong because the impact of the Fed’s hikes on the economy tends to be delayed.

The selloff in bonds paused on Friday and Treasuries rallied, with the 10-year yield hovering around 3.97%. A dollar index fell and is poised to snap four consecutive weeks of gains.

A jobs report this week showed continued labor-market resilience in the U.S., supporting the case for the Fed to keep its tightening policy, a theme that had pushed almost every major asset into the red in February.

But sentiment improved after Atlanta Fed’s Raphael Bostic said on Thursday that the central bank could possibly pause its rate hikes sometime this summer. Investors interpreted his comments as dovish, even though Bostic and his colleagues said they’d continue to be data dependent and a Fed report on Friday emphasized that further rate increases are in store.

Traders are still optimistic because even the most hawkish Fed officials haven’t suggested that rates could need to go beyond levels already baked in, said Priya Misra, global head of rates strategy at TD Securities. Swap markets have been pricing a peak Fed policy rate of 5.5% in September.