NEW YORK (AP) – Technology stocks gave Wall Street solid gains on Friday after another chipmaker reported strong artificial intelligence-related demand.
The positive end to the week for major indices comes amid lingering fears of persistently high inflation, the risk of a US debt default and generally weak corporate earnings.
The S&P 500 rose 54.17 points, or 1.3%, to close at 4,205.45. It has posted a small gain this week and is in the green as May draws to a close.
The Dow Jones Industrial Average rose 328.69 points, or 1%, to 33,093.34.
The tech-heavy Nasdaq posted the largest gains, rising 277.59 points, or 2.2%, to 12,975.69. The index rose 2.5% this week as artificial intelligence drew investor attention.
Marvell Technology rose a record-breaking 32.4% after the chipmaker said it expects AI sales to at least double in fiscal 2024 from a year earlier. This follows Thursday’s report from fellow chipmaker Nvidia, which gave a big forecast for upcoming AI-related sales.
The revolutionary AI field has become a hot topic. Critics warn it’s a possible bubble, but proponents say it could be the latest revolution to reshape the global economy. The country’s financial regulator, the Consumer Finance Protection Bureau, said it is working to ensure companies comply with the law when using AI.
Wall Street’s focus remains on Washington and the ongoing negotiations for an agreement to raise the US government’s debt ceiling and avert a potentially catastrophic default.
Officials said President Joe Biden and House Speaker Kevin McCarthy would agree on a two-year budget deal that could open the door to raising the country’s debt ceiling. The Democratic President and Republican Speaker hope to reach a budget compromise this weekend.
Wall Street and the broader economy already had a number of concerns before the US default risk was prominently featured on the list.
“Should we avoid that, and that seems like a high probability, we will revert to a trend characterized by a slowing economy, inflation that is still too high, and monetary tightening,” said Bill Northey, senior investment director at US Bank Wealth Management.
A key indicator of inflation, closely monitored by the Federal Reserve, came in higher than economists had expected in April.
Persistent inflationary pressures are making the Fed’s fight against high prices more difficult. The central bank has been aggressively raising interest rates since 2022, but recently signaled it was likely to forego a rate hike at its mid-June meeting. The government’s latest inflation report raises concerns about the Fed’s next move.
According to CME’s Fedwatch tool, Wall Street is now slightly biased toward the possibility of another quarter-point rate hike in June. The Fed has raised interest rates ten times in a row.
The Fed faces a tough decision at its next meeting, Brian Rose, senior US economist at UBS, wrote in a report.
“Inflation is too high, but further rate hikes could push the economy into recession,” he said.
Bond yields had fallen just ahead of the latest inflation data but rose after the report. The yield on the 10-year Treasury bond, which helps set interest rates on mortgages and other major loans, rose to 3.80% from 3.78% just before the report was published.
The performance of the two-year Treasury yield, which tends to reflect expectations of Fed action, was stronger. It rose to 4.56% from 4.49% before the report.
The latest inflation data also highlighted the continued resilience of consumer spending which, together with the strong labor market, has been a key bulwark against a recession. The economy grew at a sluggish 1.3% annual rate in January-March and is expected to accelerate to a pace of 2% in the current April-June quarter.
The impact of inflation and fears of an impending recession have weighed on corporate earnings and forecasts. The latest round of corporate earnings is drawing to a close, with S&P 500 corporate earnings falling about 2%. This follows a previous quarterly decline and Wall Street expects the current quarter to end with further falling earnings.
Cosmetics maker Ulta Beauty fell 13.4% after lowering its profit margin forecast. Discount retailer Big Lots fell 13.3% after reporting a much larger loss than analysts had expected in its most recent quarter.
Investors rewarded several companies that reported strong financial results. Gap rose 12.4% after the company reported strong earnings in the first quarter.
Markets face a long weekend and will remain closed on Monday for the Memorial Day holiday in the US. Investors are in for another busy week of economic updates including more consumer confidence and employment data.
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Business journalists Christopher Rugaber, Elaine Kurtenbach and Matt Ott contributed to this report.
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