Dow rises more than 300 points after inflation report as Nasdaq heads for best quarter since 2020

What’s driving markets

U.S. stocks were up sharply Friday afternoon as investors weighed data showing signs of moderating inflation.

“Core price pressures” eased in February, Barclays said in an economics research note Friday. “On balance, the easing in February PCE inflation was fairly broad-based across goods and services, barring housing.”

The personal-consumption-expenditures, or PCE, price index increased 0.3% in February, with inflation slowing to 5% year over year from 5.3% in January, according to a report Friday from the Bureau of Economic Analysis.

Core PCE, the Federal Reserve’s preferred inflation gauge that excludes energy and food prices, rose 0.3% last month for a year-over-year rate of 4.6%. That’s slightly lower than forecasts from economists polled by the Wall Street Journal and softened from the 4.7% increase seen over the 12 months through January.

Read: Inflation softens in February, PCE finds, and gives ammo for Fed rate-hike pause

While the Federal Reserve has been battling high inflation with interest rate hikes, futures traders are betting that rates have already peaked and that the Fed will likely reverse course and cut rates at least a couple of times before the end of the year, according to the CME’s FedWatch tool.

The market is pricing in a “coin flip” as to whether the Fed raises its benchmark rate by a quarter percentage point at its May policy meeting, said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management Co., in a phone interview Friday.

“We think we’re getting pretty close to the end” of the rate-hiking cycle, he said. Stucky expects the Fed may stop hiking once “cracks” start to form in the labor market, with job losses in “nonfarm payrolls.”

Meanwhile, consumer spending edged up 0.2% in February while personal incomes rose 0.3%, according to a Bureau of Economic Analysis report Friday.

“Incomes and spending are hanging in there and inflation’s cooling,” said Mike Skordeles, head of U.S. economics at Truist, in a phone interview Friday. “That has positive implications for markets” and the economy, he said.

Stocks traded higher following the release of the final reading on U.S. consumer sentiment for March from the University of Michigan. While confidence ticked lower compared with earlier estimates, inflation expectations moderated.

U.S. stocks have held up relatively well this quarter, shrugging off the Fed rate hikes and renewed recession fears. Since hitting its highest level of the year in early February, the S&P 500 has been trading in an increasingly narrow range, leaving analysts divided about where the market might be heading next.

“We need to see what the overall economy does,” said Kim Caughey Forrest, founder and chief investment officer of Bokeh Capital Partners. “I think GDP matters, and if GDP holds up while inflation comes down, that could be good for stocks.”

The Nasdaq Composite has risen around 16% since the start of the year, putting it on track for its best quarterly gain since the three months through June 2020, according to FactSet data, at last check. The technology -heavy Nasdaq jumped more than 30% in the second quarter of 2020 as stocks rebounded from the global market rout tied to COVID-19 that year.

The S&P 500 and Dow were also track for quarterly gains in late afternoon trading.

“The bond market is definitely more concerned about recession risks than stocks are,” said Skordeles, who is expecting a recession in the second half of the year. “They couldn’t be sending more different signals.”

Read: Two-year Treasury yields on pace for biggest monthly drop since 2008 after bank turmoil

New York Fed President John Williams said Friday in a speech at Housatonic Community College that stress in the U.S banking system will cause banks to tighten credit and probably lead to lower consumer spending.

Companies in focus

• Right-wing media platforms Rumble
  RUM,
  +7.12%
  and Digital World Acquisition
  DWAC,
  +7.58%
  traded sharply higher on the Donald Trump indictment news.

• Metropolitan Bank Holding Corp.
  MCB,
  +33.64%
  shares rallied after issuing a financial update assuring investors that it is well capitalized. The regional lender closed 27% down on Thursday.

• Palisade Bio’s
  PALI,
  +32.83%
  stock soared, continuing a Thursday rally after Maxim Group upgraded the stock from hold to buy.

• Spero Therapeutics
  SPRO,
  +0.69%
  shares slipped after the clinical-stage biopharmaceutical company posted fourth-quarter revenue of $47.4 million in 2022, higher than the $2.7 million in the same period of the previous year. The uplift was due to the company’s signings with GSK and Pfizer.

• Chicken Soup for the Soul Entertainment
  CSSE,
  -37.50%
  sank after the streaming-service parent company announced it would sell some stock and reported a fourth-quarter loss.

• Virgin Orbit Holdings’s
  VORB,
  -41.19%
  stock tumbled after the space-launch company said late Thursday that it would axe 675 – or 85% – of its staff and reportedly cease operations for the foreseeable future.

• Nikola Corp.
  NKLA,
  -13.57%
  slumped after the electric-vehicle maker said that it intends to sell stock at a 20% discount, for $1.12 per share.

• U.S.-listed shares of Chinese e-commerce giant JD.com
  JD,
  -1.15%
  were marginally lower after announcing late on Thursday that it intends to spin off two of its subsidiaries, following in the footsteps of Alibaba Group.

—Steve Goldstein contributed to this article.