U.S. stocks book back-to-back gains as tech continues to lead Wall Street higher ahead of inflation report

By Isabel Wang and Joseph Adinolfi

U.S. stocks finished higher on Thursday, posting back-to-back gains after the Nasdaq Composite earlier touched levels last ween in mid-February, as banking-sector fears eased and U.S. economic data bolstered hopes for a peak in interest rates.

How stocks traded

On Wednesday, the Dow Jones Industrial Average rose 323 points, or 1%, to 32,718, its highest closing level since March 8 -- the day that Silicon Valley Bank announced a doomed capital raise that led to its failure, helping to spark a transatlantic crisis of confidence in the banking sector.

What drove markets

Some encouraging economic data and waning banking-sector fears helped drive U.S. stocks sharply higher on Thursday, analysts said.

"Another day without any unwelcome banking surprises lifted markets as investors headed back towards a risk-on approach," said Richard Hunter, head of markets at Interactive Investor.

Analysts also noted an improvement in market breadth, as cyclical sectors like industrials, materials and financials that have suffered in recent weeks helping to push the market higher. Although the technology-heavy Nasdaq remained in the lead, benefiting from the perception of safety.

See:Tech stocks back as a haven? 'It's a mistake,' say market analysts

The Nasdaq Composite finished at 12,013.47, up 17.6% from its bear-market low hit on December 28. The level needed to enter a new bull market is 12,255.95, according to Dow Jones Market Data.

The tech-focused Nasdaq-100 index , which tracks the top 100 non-financial companies listed on the Nasdaq exchange, exited a bear market on Wednesday, and is currently up 21.4% from its December 28 closing low, according to Dow Jones Market Data.

"The big question now is: do we fade it or hold it in expectation of more upside? My answer to this is more nuanced than a simple fade/hold call, largely because although I do still expect the broader market and economy to hit the skids, it would likely be due to recession concerns, rather than the expectation of more monetary tightening," wrote Liz Young, head of investment strategy at SoFi, in a Thursday note.

"For that reason, I think it's very possible that the QQQ-type stock doesn't get hit as hard in a downturn as cyclical sectors such as Industrials, Financials, and even Consumer Discretionary. But the 15% quarterly return is unlikely to repeat itself all year."

Revised data on U.S. GDP growth showed the economy grew slightly more slowly during the final months of 2022, with the annualized growth rate slipping to 2.6% from 2.7% seen in the previous estimate. Slightly weaker exports and consumer spending were to blame, according to data released by the Bureau of Economic Analysis.

Meanwhile, weekly jobless claims data showed the number of Americans applying for new unemployment benefits ticked higher to 198,000 during the week ended March 25, up from 191,000 during the prior week. The reading surpassed the median estimate from economists polled by the Wall Street Journal, who had expected 195,000 initial claims.

The data helped support the case for the Fed to end its rate-hike campaign, said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

"A tick up in jobless claims within the context of a downward-revised GDP could suggest Fed action is taking its toll, but it's important to keep in mind that those claims are still relatively low, and GDP still shows growth," Loewengart said in a note to clients.

See: The Stock Market Keeps Forging Ahead. 2 Big Reasons for the Optimism

However, economic data reports are due out ahead of the conclusion of the Fed's next two-day policy meeting, which ends May 3.

For example, the personal consumption expenditures index for February is due out Friday. The gauge is the Fed's preferred measure of consumer price inflation, informing the central bank's efforts to drive inflation back to its 2% target.

Boston Fed President Collins said Thursday the stress in the banking sector made it hard to know what was the appropriate interest-rate policy, but another one-quarter-percent rate hike seemed reasonable.

"I currently anticipate some modest additional policy tightening and then holding through the end of this year," Collins said, in a speech to a National Association for Business Economics conference.

However, Richmond Fed President Barkin saws a "pretty wide" range of possible outcomes for path of interest-rate given the uncertainty facing the outlook.

"Most forecasts of our policy path seem to average the risk of higher inflation with the risk of further contagion in banking," Barkin said in a speech to the Virginia Council of CEOs at the University of Richmond.

After the bell, the Fed is expected to release its H.4.1 report on bank lending at 4:30 p.m. Eastern Time.

Companies in focus

-- Jamie Chisholm contributed to this article

-Isabel Wang

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03-30-23 1623ET

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