S&P 500, Dow book highest close in 2 months on more signs of cooling inflation and ahead of bank earnings

What happened

• Dow Jones Industrial Average
  DJIA,
  -0.42%
  rose 383.19 points, or 1.1%, to finish at 34,029.69.
• S&P 500
  SPX,
  -0.21%
  gained 54.27 points, or 1.3%, to end at 4,146.22.
• Nasdaq Composite
  COMP,
  -0.35%
  increased 236.93 points, or 2%, ending at 12,166.27.

U.S. stocks fizzled out Wednesday after early gains: the Dow Jones Industrial Average fell 38 points, or 0.11%, to 33,647, while the Nasdaq dropped more than 100 points, or almost 0.9%.

What drove markets

U.S. inflation data released this week showed that price pressures were slowly ebbing in March, even if so-called “core” inflation has proved more obstinate, suggesting the Federal Reserve may soon refrain from raising interest rates much further. However, minutes from the Federal Reserve’s March meeting have contributed to recession fears.

On Thursday, data showed U.S. wholesale prices sank 0.5% in March, the biggest decline in almost three years. On a year-to-year basis, the headline producer-price index (PPI) fell to 3.6% in March from 4.5% in February. The PPI index is seen as a leading indicator for consumer prices.

One day earlier, the CPI index, a closely watched inflation gauge, showed prices rose a scant 0.1% in March, while the year-over-year headline inflation rate declined to 5.0%. The core inflation rate, which strips out volatile food and energy costs, moved up to 5.6% over the past 12 months, from 5.5% in February.

Weekly data on the number of Americans applying for unemployment benefits showed an increase last week of 11,000 to 239,000, indicating a small but steady increase in layoffs in a generally strong U.S. labor market.

“Concerns about inflation appear to be playing second fiddle behind worries that the economy is moving closer to recession with today’s PPI depicting demand for manufactured goods declining, while unemployment claims data points to a labor market that continues to cool,” said José Torres, senior economist at Interactive Brokers.

Edward Moya, senior market analyst at OANDA, said stocks are rallying as economic data continues to soften and as corporate updates support the idea that the economy is gradually weakening. “Bad news is once again good news for stocks,” he wrote in emailed comments.

See: Why the weakness in U.S. bank stocks since the collapse of SVB is a worrisome sign on eve of bank earnings

Investors are now turning their attention to corporate earnings as the informal start to the first-quarter reporting season arrived Thursday.

“Now that we’ve got through the economic data side of things, the focus is on earnings,” said Jake Jolly, head of investment analysis at BNY Mellon.

Investors will receive critical input from some of the biggest U.S. banks about how the collapse of Silicon Valley Bank and two other U.S. lenders might impact their business, and the availability of credit in the economy. JPMorgan Chase
JPM,
+7.55%,
Wells Fargo
WFC,
-0.05%,
Citi
C,
+4.78%
and BlackRock
BLK,
+3.07%
will be among the large financial institutions posting their earnings before markets open on Friday. “Anything that offers a forward look at credit conditions will be key,” Jolly added.

FactSet estimates have earnings per share for S&P 500 companies declining 6.8% during the first quarter. If this comes to pass, it would mark a second straight quarter of contraction.

See: The ‘fuel is there to blow the top off’ the stock market. Here’s what’s missing.

U.S. stocks have been trading in a notably tight range over the past two weeks, with the S&P 500 trading closely around the 4,100 level, according to FactSet data. The rolling 7-day average for absolute percentage moves for the S&P 500 fell below 0.3% to the lowest level since Nov. 2021 on Wednesday, according to Dow Jones Market Data.

Companies in focus

• Delta Air Lines Inc. shares
  DAL,
  +1.20%
  finished 1.1% lower on Thursday, after the air carrier swung to a first-quarter profit as revenue rose above expectations, and said it was “confident” in its full-year projections given a “strong” outlook for the current quarter.
• U.S.-traded shares of Alibaba Group Holding Ltd.
  BABA,
  -1.68%
  rose 2.5% Thursday following a report that SoftBank Group Corp. has moved to sell most of its stake in the Chinese tech giant.
• Match Group Inc.
  MTCH,
  -1.04%
  advanced 3.9% after a Barclays analyst upgraded the stock to overweight.
• Shares in American Airlines Group Inc. trimmed earlier losses on Thursday after the air carrier raised its profit outlook, but not by enough to match Wall Street expectations. Its shares ended down 0.4%.

–— Steve Goldstein contributed to this article