Wall St rallies to higher close as inflation data feeds Fed pause hopes

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 23, 2023. REUTERS/Brendan McDermid

By Stephen Culp

NEW YORK (Reuters) - 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 more than 1%, with interest rate sensitive megacaps including Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT) and Amazon.com (NASDAQ:AMZN) providing the most upside muscle and pushing the tech-heavy Nasdaq up nearly 2% 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 of next month's Federal Open Market Committee 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."

Inflation https://www.reuters.com/graphics/USA-STOCKS/zgvobjjqdpd/inflation.png

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 (NYSE:C), JPMorgan Chase & Co (NYSE:JPM), Wells Fargo (NYSE:WFC) & Co 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.

The Dow Jones Industrial Average rose 383.19 points, or 1.14%, to 34,029.69; the S&P 500 gained 54.27 points, or 1.33%, at 4,146.22; and the Nasdaq Composite added 236.94 points, or 1.99%, at 12,166.27.

Among the 11 major sectors of the S&P 500, all but real estate ended the session higher, with communication services and consumer discretionary enjoying the largest gains, both jumping 2.3%.

Delta Air Lines Inc (NYSE:DAL) shares fell 1.1% following the company's first-quarter profit miss.

Shares of Harley-Davidson Inc (NYSE:HOG) slid 1.7% after the motorcycle maker announced Chief Financial Officer Gina Goetter was leaving the company at the end of April.

Groupon (NASDAQ:GRPN) Inc jumped 4.0% after the company appointed Jiri Ponrt to succeed Damien Schmitz as chief financial officer.

Netflix Inc (NASDAQ:NFLX) rose 4.6% after Wedbush said the streaming platform's revenue growth of new subscribers could drive up profitability.

Advancing issues outnumbered decliners on the NYSE by a 2.71-to-1 ratio; on Nasdaq, a 2.55-to-1 ratio favored advancers.

The S&P 500 posted 12 new 52-week highs and one new low; the Nasdaq Composite recorded 69 new highs and 140 new lows.

Volume on U.S. exchanges was 10.40 billion shares, compared with the 11.51 billion average over the last 20 trading days.