Dow advances over 200 points, heads for best month since January on earnings, PCE inflation data
U.S. stocks advanced on Friday, with the Dow Jones Industrial Average logging its best monthly gain in three months, boosted by strong earnings from the tech sector though inflation data cemented expectations for another interest-rate hike by the Federal Reserve next week.
The U.S. banking system has come under renewed pressure as concerns weigh over the First Republic Bank’s ability to raise fresh capital after it revealed an exodus of deposits in March this week. The regional lender is reported to be likely headed for receivership under the U.S. Federal Deposit Insurance Corporation.
- The S&P 500 gained 34.13 points, or 0.8%, to end at 4,169.48
- The Dow Jones Industrial Average advanced 272 points, or 0.8%, to finish at 34,098.16
- The Nasdaq Composite rose 84.35 points, or 0.7%, ending at 12,226.58. It was the highest close for the tech-heavy index since September 12, 2022, according to Dow Jones Market Data.
The Dow industrials notched its best monthly performance, up 2.5% in April, while the S&P 500 advanced 1.5% and the Nasdaq gained less than 0.1% for the month, according to Dow Jones Market Data.
On Thursday, the Dow industrials and S&P 500 recorded their biggest daily increase since Jan. 6, according to Dow Jones Market Data. The Nasdaq Composite clinched its best day since March 16. On the final trading day of the month, the Nasdaq is the only one of the major U.S. indexes that’s set to record a monthly loss.
What drove markets?
U.S. stock indexes Friday built on the sharp rally seen in the previous session when the Dow industrials and the S&P 500 clinched their biggest one-day gains since January, thanks to strong results from Facebook parent Meta Platforms Inc. which followed equally upbeat results form Microsoft Corp. and Google parent Alphabet Inc. as big-tech earnings this week generally surpassed Wall Street’s expectations.
However, Amazon.com Inc. earnings released after the bell on Thursday helped to dampen investor confidence. The e-commerce giant warned late Thursday that revenue growth for Amazon Web Services had slowed in the current quarter. Amazon shares fell 3.5%.
Investors also kept an eye on First Republic Bank after Reuters reported that U.S. officials have begun discussions with banks and private equities to rescue the struggling lender. Shares of First Republic jumped early Friday, but reversed gains to end 43.3% lower as investors bet the Federal Deposit Insurance Corp. will take over the beleaguered lender after the closing bell.
See: First Republic shares resume their slide as clock ticks on potential rescue
On Friday, the Federal Reserve’s preferred inflation data showed the cost of goods and services rose a scant 0.1% in March and the yearly rate of inflation slowed again in response to higher interest rates and a cooler economy. The yearly increase in prices declined to 4.2% from 5.1% in the prior month. That’s the lowest level since May 2021, although it’s still double the Fed’s 2% target for inflation.
See: Inflation barely rises, PCE shows, but core rate is still ‘sticky’
The U.S. employment cost index, the broadest measure of U.S. labor costs, rose 1.2% in the first quarter after gaining 1.1% in the last three months of 2022, the Labor Department said Friday. Compensation climbed at 4.8% clip in the 12 months ended in March, down from 5.1% in the prior quarter, the highest rate since 1990.
Investors expect the Fed will deliver another 25 basis point interest-rate hike when its two-day policy meeting ends on Wednesday. The CME FedWatch Tool is pointing to a 79% chance of a quarter-point rate increase.
Ryan Belanger, founder and managing principal at Claro Advisors, a wealth management firm in Boston, said Friday’s PCE reading, which shows inflation growth decelerated in March, is “encouraging news” for the central bank, but price pressure is still running at more than double the central bank’s 2% target.
“It gives the Federal Reserve an excuse to hike interest rates by 25 basis points at the May meeting, even though there is a growing chorus among investors for the Fed to pause its rate hikes given worries about the economy,” Belanger said.
See: Fed expected to raise rates again, perhaps for the last time this cycle
Jamie Cox, managing partner at Harris Financial Group, said the economy has just started to see a rapid decline in inflation as it has grappled with aggressive rate hikes, restrictions in lending and a manufacturing recession over the last year. “The closer we get to the fall, the faster these numbers [inflation gauges] are going to decline,” he said.
That also means the Fed does not need to raise the policy rate any further as the banking “crisis” is going to do the work of the Fed for it, Cox told MarketWatch in a phone interview on Friday.
“That’s why I do not believe the Fed needs to raise rates next week because the only thing that they’re going to accomplish by raising rates next week is to further exacerbate the banking ‘crisis.’ The rate increase of 25 basis points will have only a tiny impact on inflation, but a massive impact on a very fragile banking system,” Cox said.
Elsewhere, the Bank of Japan kept its ultra-low interest rates in place, but also said it would begin a new policy review, at the first meeting for new Gov. Kazuo Ueda. The U.S. dollar jumped 1.7% against the Japanese yen.
See: The stock market’s volatility gauge is near an 18-month low. Why aren’t debt-ceiling, recession and banking fears taking a bigger toll?
Companies in focus
- Intel Corp. stock finished 4% higher on Friday after the chip maker topped analyst forecasts for the quarter and said that the company’s data-center business was improving.
- Exxon Mobil Corp. jumped 1.3% following its first-quarter report that showed it beat earnings expectations but posted a decline in revenue.
- Pinterest Inc.’s stock dropped 15.7% after it issued a weak forecast despite reporting better-than-expected earnings late Thursday.
- Snapchat parent Snap Inc. tumbled 17.1% after it missed Wall Street revenue expectations.
— Barbara Kollmeyer contributed to this article