U.S. stocks rallied on Friday to close out a strong week on optimism over the health of the economy and path of interest rates as investors braced for a slew of policy changes under the incoming Trump administration.

The S&P 500 and Dow Industrials registered their biggest weekly percentage gains since early November and the Nasdaq recorded its best since early December. Data this week allayed fears that inflation would resurge while expectations have grown that the Federal Reserve will bump up the timing and magnitude of rate hikes this year.

The Commerce Department reported on Friday that U.S. single-family homebuilding rose to a 10-month high although demand will likely be curbed by rising mortgage rates and an oversupply of new properties.

A separate report revealed a surge in manufacturing output last month.

President-elect Donald Trump will be inaugurated on Monday, when U.S. markets will close for the Martin Luther King Jr. Day holiday.

Uncertainty over the potential for some of Trump's policies such as tariffs to rekindle rising inflation pressures and slow the path of Fed rate cuts has weighed on equities in recent weeks.

But a solid start to the corporate earnings season with results from many big banks has also helped buoy stocks this week, with the S&P 500 bank index (.SPXBK), up nearly 7% on the week.

According to preliminary data, the S&P 500 (.SPX), gained 59.48 points, or 1.01%, to end at 5,996.82 points, while the Nasdaq Composite (.IXIC), gained 291.91 points, or 1.51%, to 19,630.20. The Dow Jones Industrial Average (.DJI), 338.82 points, or 0.79%, to 43,491.95.

The benchmark U.S. 10-year note yield was little changed at 4.609%, but has eased off a 14-month high of 4.809% hit earlier this week.

Cleveland Fed President Beth Hammack said inflation remains a problem, as recent data has pointed to a resilient economy. However, Fed Governor Christopher Waller indicated on Thursday the central bank could cut rates sooner and faster than expected as inflation is likely to continue to ease.

The Fed is widely expected to keep rates steady at its policy meeting later this month, with the markets pricing in a greater than 50% chance for a cut of at least 25 basis points until June, LSEG data showed.

Source : Reuters