US equity markets gave back a portion of the previous week’s strong gains after Saint Louis Fed’s President James Bullard appeared to dampen hopes that inflationary pressures had peaked.

US equities rallied after data showed signs that US consumer prices, while still elevated, had started to slow, supporting the view that inflation might have peaked.

The Nasdaq and S&P 500 Index finished the week with gains, while the Dow Jones Industrial Average recorded a loss as a much stronger-than-expected jobs report revived investor concerns that the Fed will need to keep an hawkish stance to fight inflation.

US stocks posted solid gains despite another 75-basis-point rate hike from the Fed and news that the US economy contracted at a 0.9% annual rate in the second quarter.

Investors appeared to welcome signs of a slowing economy and fading inflationary pressures. Indeed, disappointing US Macro data (PMIs, initial jobless claims, Housing data, Philly Fed leading indicators) drove US rate hikes expectations lower, pushing bond yields and the dollar downward and main stocks indices higher.

Stocks remained volatile in light summer trading, as investors absorbed inflation data and the start of Q2 earnings season.

The main US equity indices erased much of the previous week’s losses on optimism that the Fed will be able to curb inflation without tipping the economy into a recession.

The S&P 500 Index closed out its worst first half of the year since 1970.

Signs that growth and inflation might be moderating helped stocks rally sharply over the week, lifting the S&P 500 out of bear market territory.

The Fed’s most aggressive rate hike (+75bp) since 1994 raised recession fears and sent stocks sharply lower for a 2nd consecutive week.