Stocks surged on Friday to cap a first-quarter rally that saw the Nasdaq gain more than 16% while the S&P 500 rose 7% as investors shook off a bank crisis and more interest rate hikes from the Fed.
When the closing bell rang on Friday the S&P 500 (^GSPC) was up 1.4%, the Dow Jones Industrial Average (^DJI) higher by 1.2%, and the technology-heavy Nasdaq Composite (^IXIC) had gained 1.6%.
At the sector level, Consumer Discretionary (XLY), Real Estate (XLRE), and Communication Services (XLC) led markets to finish the week, rising 2.6%, 2.2%, and 1.9%, respectively. All 11 sectors in the S&P 500 were higher amid the broad-based rally to cap the week, month, and quarter.
Stock futures perked up on Friday morning after inflation data showed further cooling in the personal consumption expenditures (PCE) index, which is the Fed's preferred measure of inflation.
In February, "core" PCE, which strips out the more volatile costs of food and energy, rose 0.3% over the prior month and 4.6% over last year, with the annual increase coming in below Wall Street expectations for a 4.7% rise.
A slowdown in inflation could ease pressure the Federal Reserve feels to continue with its rate-hiking campaign, which Fed officials earlier this week suggested will likely continue this spring given price increases that remain too high and a bank crisis that has shown signs of ebbing.
Data on consumer sentiment from the University of Michigan showed consumers were more downbeat on their prospects this month, as sentiment dropped for the first time since November. Notably, however, the bank crisis spurred by the collapse of Silicon Valley Bank did not add to negative views on the economy.
"This month’s turmoil in the banking sector had limited impact on consumer sentiment, which was already exhibiting downward momentum prior to the collapse of Silicon Valley Bank," said Joanne Hsu, director for the survey of consumers at the University of Michigan.
"Overall, our data revealed multiple signs that consumers increasingly expect a recession ahead. While sentiment fell across all demographic groups, the declines were sharpest for lower-income, less-educated, and younger consumers, as well as consumers with the top tercile of stock holdings."
Friday will serve as the final trading session in a quarter that, as Yahoo Finance's Jared Blikre noted, has brought to the fore some market trends from days gone by, most significantly the outperformance of tech stocks.
The Nasdaq 100 was has gained more than 18% this year with names like Apple (AAPL) and Amazon (AMZN) up more than 20%. Tesla (TSLA) and Meta Platforms (META) have gained more than 60% in 2023.
In a note to clients published Thursday, Fundstrat's Tom Lee highlighted that bull markets tend to start with two consecutive quarterly gains for the S&P 500, which will be confirmed at Friday's close after the S&P 500 rose 7% in the fourth quarter of 2022.
"The first quarter of 2023 is coming to a close Friday and despite a wrenching banking crisis, the S&P is up +5.5% and up +2.3% for the month of March," Lee wrote.
"Many skeptics (anecdotally, the majority of our clients) are likely sniffing at these gains, as mere noise until the bear market re-asserts itself. But for reasons outlined below, we believe 1Q23 gains now solidifies that 'bears are now trapped.'"
In addition to noting the two-straight quarterly gains, Lee argued the bank crisis appears to be a blip rather than a protracted event, CFTC data shows traders remain net short the market, and April has been the S&P 500's best month over the last 20- and 50-year periods.
"Bottom line: It is the bears who are trapped and could fuel further gains in April," Lee wrote.
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