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(Reuters) – The S&P 500 was set to end its second straight quarter on a high note on Friday, as evidence of cooling inflation further supported hopes of a softer monetary policy approach from the Federal Reserve in light of recent banking sector problems.
Friday caps a turbulent first quarter and month for stocks marked by shockwaves from the collapse of two regional U.S. banks and signs of trouble in some European banks which have led to a repricing in interest rate expectations from the Fed.
Still, the S&P 500 is up 6% so far in the first three months of the year, while the Nasdaq is set for its first quarterly gain in five quarters, benefiting from a shift to technology and other growth stocks from financial stocks amid fears of a bank contagion.
The cyclicals-heavy Dow Jones was flat on the quarter.
Among major S&P 500 sectors, technology has quarterly gains of about 20%, while the financials index is set for its worst quarter since June.
A closely watched Commerce Department report on Friday showed U.S. consumer spending rose moderately in February, while inflation also cooled.
The personal consumption expenditure (PCE) index, which is the Fed’s preferred inflation gauge, rose 0.3% in February on a monthly basis, moderating from a 0.6% rise in January.
“It wasn’t a dramatic report, but it does show that inflation is cooling,” said David Waddell, CEO and chief investment strategist at Waddell & Associates.
“The Fed doesn’t need to go any further. It’s not worth the risk of further destabilization to the banking system.”
(Graphic: S&P 500 sectoral performance in Q1 – https://www.reuters.com/graphics/STOCKS-QUARTER/egpbyjdlwvq/chart.png)
Traders’ bets of a 25-basis-point rate hike in May stand at 53.8%, according to CME Group’s (NASDAQ:CME) Fedwatch tool, with rate cuts also expected this year.
Boston Fed President Susan Collins noted that it was still early for the central bank to assess whether its rate hikes have gone far enough to bring inflation back to the Fed’s 2% target.
As U.S. 10-year Treasury yields dipped following the inflation data, major growth names like Apple Inc (NASDAQ:AAPL), Meta Platforms, Amazon.com (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) gained between 0.5% and 4% on Friday.
Limiting gains, Micron Technology (NASDAQ:MU) dropped 2.7% after news that China was set to review the chipmaker’s products sold in the country.
The broader Philadelphia semiconductor index fell marginally on Friday but is up 27% on the quarter, with Nvidia (NASDAQ:NVDA) as the top boost after gaining 87%.
At 11:57 a.m. ET, the Dow Jones Industrial Average was up 244.35 points, or 0.74%, at 33,103.38, the S&P 500 was up 34.46 points, or 0.85%, at 4,085.29, and the Nasdaq Composite was up 131.40 points, or 1.09%, at 12,144.87.
Companies linked to Donald Trump such as Digital World Acquisition Corp and Phunware Inc jumped 6.6% and 9.8% respectively, amid retail investor interest, a day after the former president was indicted in a historic first.
Shares of Nikola Corp tumbled 11.0% after the electric truck maker said it plans to sell shares and raise $100 million.
Advancing issues outnumbered decliners by a 5.73-to-1 ratio on the NYSE and by a 2.76-to-1 ratio on the Nasdaq.
The S&P index recorded 14 new 52-week highs and no new low, while the Nasdaq recorded 57 new highs and 98 new lows.
