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  • Writer's pictureThe San Juan Daily Star

S&P 500 leaps to highest close in 14 months; traders bet US rates near peak

The S&P 500 and Nasdaq surged on Thursday to close at their highest in 14 months, as investors cheered economic data that fueled bets that the U.S. Federal Reserve is nearing the end of its aggressive interest-rate hike campaign.

Treasury yields slid after a slew of economic data pointed to easing inflation, helping offset worries about future rate hikes and fueling record highs for Microsoft (MSFT.O) and Apple (AAPL.O).

Data showed U.S. retail sales unexpectedly rose in May as consumers spent on a range of goods including vehicles. Another data set showed jobless claims were unchanged at a seasonally adjusted 262,0000 for the week ended June 10, but were above economists’ forecast of 249,000 claims.

Additionally, import prices fell in May and the annual decrease was the sharpest in three years. That followed a report on Tuesday showing April headline inflation increased by less than expected.

The latest wave of data came after Fed left rates unchanged at the 5%-5.25% range on Wednesday and indicated it may hike by at least half a percentage point this year as inflation remains stubbornly persistent and the U.S. economy stays resilient.

“Due to softer inflation data earlier this week and resilient economic data after the Fed meeting, the market is rallying and yields are falling because investors don’t believe the Fed is as hawkish as they presented,” said Ross Mayfield, an investment strategy analyst at Baird.

“The market doesn’t believe they have two more hikes in the chamber.”

Traders see a 67% chance of a 25-basis point rate hike in July, followed by a potential rate cut by December, according to the CME Fedwatch tool.

Thursday’s gains were broad and included industrials and materials, viewed as sensitive to swings in the health of the economy.

U.S. Treasury yields pulled back, lifting shares of rate-sensitive growth stocks, including Meta Platforms (META.O) and Alphabet (GOOGL.O).

“There is a great deal of money on the sidelines of people who’d been scared of recession, and as the worries go away people are returning to equities,” said David Russell, vice president of Market Intelligence at TradeStation.

So far in 2023, the S&P 500 is up about 15% and the Nasdaq has climbed about 32%, fueled by signs of economic resilience, a better-than-expected earnings season and bets that interest rates are near their peak.

According to preliminary data, the S&P 500 (.SPX) gained 53.67 points, or 1.23%, to end at 4,426.26 points, while the Nasdaq Composite (.IXIC) gained 156.34 points, or 1.15%, to 13,782.82. The Dow Jones Industrial Average (.DJI) rose 430.31 points, or 1.27%, to 34,415.46.

Kroger Co (KR.N) dropped after the big-box retailer missed first-quarter revenue estimates.

Kohl’s Corp <KSS.N> rose after TD Cowen upgraded the department store operator to “outperform” from “market perform”.

U.S.-listed shares of Chinese companies Alibaba Group and <JD.O> gained after the People’s Bank of China cut the borrowing cost for its medium-term policy loans for the first time in 10 months.

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