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Wall Street rallies to higher close as inflation data feeds Fed pause hope

US equities finished substantially higher on Thursday as economic data revealed falling inflation and a tightening job market, stoking hopes that the Federal Reserve’s aggressive interest rate hike cycle is coming to an end.

All three major U.S. stock indexes rose more than 1%, with interest-rate sensitive megacaps such as Apple Inc (AAPL.O), Microsoft Corp (MSFT.O), and Amazon.com (AMZN.O) providing the most upside muscle, propelling the tech-heavy Nasdaq up nearly 2%, its biggest one-day percentage gain in nearly a month.

Statistics reported before the bell revealed a steeper-than-anticipated drop in producer prices and new applications for unemployment benefits that were higher than predicted. Both indicate that the Fed’s aggressive rate-hiking assault, which started more than a year ago, is working as planned.

The announcement follows Wednesday’s subdued Consumer Price Index report, which confirmed the possibility of another 25 basis point rate rise at the end of the Federal Open Market Committee’s policy meeting next month.

“Markets rallied today following the lower inflation data this morning, as it’s still all about the Fed so it’s really all about inflation,” said David Carter, investment specialist at JPMorgan Private Bank in New York.

“Together with yesterday’s muted CPI data, PPI is also suggesting some slowdown in inflation which could mean a quick end to Fed tightening.”

According to CME’s FedWatch tool, financial markets are pricing in a roughly one-in-three chance that the Fed will hit the pause button and leave the Fed funds target rate unchanged at 4.75% to 5.00%.

The emphasis of investors now switches to the first-quarter earnings season, which begins on Friday with a trio of large banks: Citigroup (C.N), JPMorgan Chase & Co. (JPM.N), and Wells Fargo & Co. (WFC.N) reporting.

“Tomorrow’s bank earnings could give insight into the strength of regional banks and future lending activity,” Carter added. “It will be interesting to see what banks say tomorrow about future economic growth.”

According to Refinitiv, analysts predict aggregate first-quarter S&P 500 profits to be 5.2% lower than the year-ago quarter, a sharp contrast to the 1.4% year-on-year rise projected at the start of the period.

The Dow Jones Industrial Average (.DJI) increased 383.19 points, or 1.14%, to 34,029.69; the S&P 500 (.SPX) increased 54.27 points, or 1.33%, to 4,146.22; and the Nasdaq Composite (.IXIC) increased 236.94 points, or 1.99%, to 12,166.27.

All but real estate (.SPLRCR) closed the day up among the S&P 500’s 11 main sectors, with communication services (.SPLRCL) and consumer discretionary (.SPLRCD) posting the greatest gains, both up 2.3%.

Delta Air Lines Inc. (DAL.N) shares declined 1.1% after the firm reported a loss in the first quarter.

Harley-Davidson Inc. (HOG.N) shares fell 1.7% after the motorcycle manufacturer revealed that Chief Financial Officer Gina Goetter will be departing the business at the end of April.

Groupon Inc. (GRPN.O) rose 4.0% after the business named Jiri Ponrt as chief financial officer to follow Damien Schmitz.

Netflix Inc (NFLX.O) climbed 4.6% after Wedbush predicted that the streaming platform’s revenue growth from new users would boost profitability.

On the NYSE, advancers outweighed decliners by a 2.71-to-1 ratio; on the Nasdaq, advancers outpaced decliners by a 2.55-to-1 ratio.

The S&P 500 had 12 new 52-week highs and one new low, while the Nasdaq Composite saw 69 new highs and 140 new lows.

Volume on US markets was 10.40 billion shares, compared to an average of 11.51 billion for the previous 20 trading days.

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