Stocks ended the quarter on a positive note, after a stormy three months in which markets were whipsawed by strains in the banking system as well as shifting outlooks for inflation and interest rates.
Government data early Friday showed the Federal Reserve’s preferred measure of inflation, known as the core personal-consumption expenditures price index, slowed in February, lifting hopes the central bank could limit its campaign to curb inflation sooner than originally expected.
The S&P 500 ended the day 58.48 points higher, or 1.4%, at 4109.31. The Dow Jones Industrial Average closed up 415.12 points, or 1.3%, at 33274.15. The tech-heavy Nasdaq Composite increased 208.44 points, or 1.7%, to 12221.91.
Markets shook off the Thursday indictment of former President Donald Trump related to his role in hush money payments to a former porn star on the eve of the 2016 election.
“Political headlines have had less and less impact,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “We have learned to live with a much higher level of chaos than we were used to a few years ago.”
Shares of companies with ties to Mr. Trump rose, even though broader market reactions were muted. Digital World Acquisition Corp., the blank-check company that plans to merge with Mr. Trump’s social-media company, gained 99 cents, or 7.6%, to $14.05.
Investors are recalibrating after a tumultuous few weeks in global markets, which were upended early in March with the sudden collapse of several U.S. banks. The Fed signaled it could ease up on interest-rate increases, partly because the banking turmoil is expected to cause a pullback in credit growth.
Bank stocks have staged a partial recovery recently, helped in part by regulators stepping in with emergency measures to protect depositors and offer banks more liquidity. But many remain below where they were before the recent crisis.
The KBW Nasdaq bank index rose 4.7% this week but was down 25% for March. It closed out its worst month since March 2020, when the Covid pandemic spread. Bank of America Corp., Wells Fargo & Co., and PNC Financial Services Group Inc. also recorded their worst monthly performance in three years, according to Dow Jones Market Data.
The troubled lender First Republic Bank logged its largest quarterly drop on record, according to Dow Jones Market Data. Charles Schwab Corp. had its worst quarter since 2008.
Still, the major indexes ended the quarter higher. The S&P 500 is up 7% since the start of the year, its second straight quarterly gain. The Nasdaq Composite Index is up 17%, its largest quarterly gain since 2020.
“The market seems intent on closing the book on the banking problems that caused the market to expect the end of the Fed’s rate hike campaign,” said Quincy Krosby, chief global strategist at LPL Financial.
Bonds have been volatile as interest-rate expectations have twisted and turned.
The 10-year yield fell Friday to 3.491%. The 2-year yield, which more closely reflects investor expectations for short-term rates, slid to 4.060% to close out its largest monthly decline since 2008. Both yields recorded their largest quarterly drops since March 2020.
Some investors have been too quick to conclude the Fed will cut interest rates later in the year in response to the banking upheaval, said Richard McGuire, head of rates strategy at Rabobank.
He said policymakers at the U.S. central bank, due to make their next rate decision in early May, remain laser-focused on slowing the economy through higher borrowing costs to curb inflation.
That could put pressure back on stocks and short-term government bonds. “The banking-sector troubles we have been seeing will not shift them off course,” Mr. McGuire said.
Oil prices ticked up. Brent crude futures rose 0.6% to $79.77 a barrel. Prices have fallen this quarter as Russian oil kept flowing and investors say a likely recession could curb fuel demand. But an Iraqi pipeline dispute could tighten global supplies if it isn’t resolved soon.
Overseas, the Stoxx Europe 600 added 0.7% Friday. China’s Shanghai Composite Index rose 0.4% and Japan’s Nikkei 225 gained 0.9%.