U.S. stocks ended sharply higher on Thursday as economic data showed cooling inflation and a loosening labor market, fueling optimism that the Federal Reserve could be nearing the end of its aggressive interest rate hike cycle.
All three major U.S. stock indexes surged, with interest rate sensitive megacaps providing the most upside muscle and pushing the tech-heavy Nasdaq to its biggest one-day percentage jump in nearly a month.
Data released before the bell showed a steeper-than-expected cooldown in producer prices and new claims for jobless benefits coming in above consensus. Both signal that the Fed’s hawkish barrage of rate hikes, which began over a year ago, is working as intended.
The data comes on the heels of Wednesday’s muted Consumer Price Index report, which cemented the likelihood of yet another 25 basis point rate hike at the conclusion next month’s FOMC policy meeting.
“Markets rallied today following the lower inflation data this morning, as it’s still all about the Fed so it’s really all about inflation,” said David Carter, investment specialist at JPMorgan Private Bank in New York.
“Together with yesterday’s muted CPI data, PPI is also suggesting some slowdown in inflation which could mean a quick end to Fed tightening.”
Financial markets are pricing in a roughly one-in-three probability that the central bank will press the pause button and let the Fed funds target rate stand in the 4.75% to 5.00% range, according to CME’s FedWatch tool.
Investor focus now shifts to first-quarter earnings season, which jumps into full swing on Friday when a trio of big banks, Citigroup (C.N), JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N) report.
“Tomorrow’s bank earnings could give insight into the strength of regional banks and future lending activity,” Carter added. “It will be interesting to see what banks say tomorrow about future economic growth.”
Analysts expect aggregate first-quarter S&P 500 earnings to come in 5.2% below the year-ago quarter, a stark reversal from the 1.4% year-on-year growth seen at the beginning of the quarter, according to Refinitiv.
According to preliminary data, the S&P 500 (.SPX) gained 53.96 points, or 1.33%, to end at 4,145.91 points, while the Nasdaq Composite (.IXIC) gained 236.94 points, or 1.99%, to 12,166.27. The Dow Jones Industrial Average (.DJI) rose 382.54 points, or 1.14%, to 34,029.04.
Groupon Inc (GRPN.O) jumped following the company’s appointment of Jiri Ponrt to succeed Damien Schmitz as chief financial officer.
Netflix Inc (NFLX.O) advanced after Wedbush said the streaming platform’s revenue growth of new subscribers could drive up profitability.