U.S. stocks closed higher on Thursday, with the Nasdaq Composite reaching a new record closing high, marking a significant milestone more than two years since its previous peak.
Market sentiment received a boost after investors processed a key economic report released on Leap day, indicating gradual progress in the fight against inflation. While the Federal Reserve’s preferred inflation measure met expectations, it also highlighted the persistence of inflationary pressures, hitting its highest monthly reading in nearly a year.
The Nasdaq Composite surged by 0.90% to settle at 16,091.92 points, achieving an all-time closing peak, surpassing its previous record set on November 19, 2021. The S&P 500 also recorded gains, rising by 0.52% to finish at 5,096.27 points, while the Dow climbed by 0.12% to conclude at 38,995.93 points.
Nine out of the 11 sectors within the S&P 500 closed in positive territory, reflecting broad-based strength across the market.
Ahead of regular trading, the U.S. Bureau of Economic Analysis released the personal income and outlays report for January, revealing that the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, increased by 0.4% month-over-month (M/M). This figure matched expectations and signaled an acceleration from the previous month. Additionally, on a year-over-year (Y/Y) basis, the core PCE price index stood at +2.8%, consistent with estimates and showing a slight moderation from December’s reading.
The latest PCE data released today presented a mixed picture, following recent reports of higher-than-expected consumer and price inflation earlier in the month. While the core PCE matched consensus expectations, indicating some relief, concerns over persistent inflationary pressures remained evident.
The slight deceleration in the annualized basis of the core PCE data could be seen as a positive step toward the Federal Reserve’s 2% inflation target, albeit at a slow and steady pace. However, the data also reinforced worries about inflation remaining stubbornly high.
In response to the PCE data, market expectations for rate cuts showed a slight uptick according to the CME FedWatch tool. The probability of a 25 basis point rate cut in May increased to approximately 23%, up from 18% the day before.
Leo Nelissen, from the investing group iREIT on Alpha, noted that the PCE data meeting expectations helped alleviate concerns about a resurgence of inflation. Consequently, rate-sensitive sectors like real estate and technology performed well. Additionally, the market’s alignment with the Fed’s expectations of potential rate cuts in 2024 suggests a cautious approach, with June now being eyed as the first potential month for a rate cut.
Nelissen emphasized that the Federal Reserve is unlikely to adjust its stance quickly as long as consumer spending remains robust and no recession signals emerge. He noted that the Treasury’s injection of liquidity, akin to partial quantitative easing (QE), has been supportive of risk assets like technology, growth stocks, and cryptocurrencies. Therefore, Nelissen continues to favor value stocks as an underdog in the current market environment.
Treasury yields experienced mixed movements on Thursday. The 30-year yield decreased by 2 basis points to 4.39%, while the 10-year yield remained relatively unchanged at 4.27%. Conversely, the 2-year yield, which is more sensitive to interest rate changes, remained flat at 4.65%.
For further insights on Treasury yields across the curve, investors can refer to the bond page on Seeking Alpha.
In stock market activity, Salesforce, a constituent of the Dow 30 index, concluded the session higher. The company’s quarterly results and guidance were well-received by Wall Street, contributing to the positive sentiment surrounding the cloud-based software firm.