Technology shares extended the week’s U.S. stocks rally after a key measure of inflation cooled last month, suggesting the Federal Reserve may be close to ending its rate-hiking campaign. Treasuries rose.

Excluding food and energy, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3 per cent in February, slightly below the median estimate. Meanwhile, the PCE price index was up 5 per cent from a year earlier, a deceleration from January but far higher than the Fed’s 2 per cent goal.

The S&P 500 rose 1.4 per cent — bringing its weekly gains to 3.5 per cent, the most since November — while the tech-heavy Nasdaq 100 gained 1.7 per cent, helping it to notch its biggest quarterly gain since June 2020. 

“Overall, it was a round of data consistent with the peak inflation narrative but also with the Fed’s insistence that there remains work to be done to re-establish price stability,” Ian Lyngen of BMO Capital Markets wrote in a note.

Treasuries also ended the quarter of wild swings higher on Friday as investors struggled to adjust for recent bank failures and the shifting outlook for interest rates. The two-year yield fell to around 4.05 per cent Friday while the 10-year maturity dipped to 3.48 per cent. The dollar strengthened against major peers.

“The S&P 500 has done well to recover from banking sector concerns over the past few weeks,” wrote Michael Gibbs, director of equity portfolio and technical strategy at Raymond James. “However, the rally has been a bit more uneven beneath the surface, reflecting the confusion inherent within the current backdrop.”

While technology stocks have risen to the highest since August 2022 — propelling gains in the broader market — the percentage of stocks above their 50-day moving average has contracted, Gibbs said. Only a small number of shares actually account for the U.S. rally. 

“Extremely narrow rallies are not healthy ones at all, so it is going to be essential for the bulls to see more groups participate in the rally going forward,” Matt Maley, chief market strategist at Miller Tabak + Co., wrote. “If they don’t, it will only be a matter of time before a correction in the big-cap tech names turns this nice rally into an ugly decline.”

Citigroup Inc. strategists said the focus among investors is set to shift from worries about high interest rates to the risks of a recession, and as that happens, U.S. stocks look more attractive than those in Europe.

A Citi team led by Beata Manthey upgraded U.S. stocks to overweight from underweight on Friday as they “perform more defensively than other markets” during earnings recessions. They expect global earnings-per-share to contract 5 per cent in 2023 and say that analysts are likely to slash profit estimates even further. 

Elsewhere in markets, oil traded in New York saw a weekly gain of 9 per cent amid ongoing disruption to Iraqi exports. Bitcoin notched its best quarter since March 2021 with a gain of about 70 per cent. And Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied after he became the first former president to be indicted.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.4 per cent as of 4:04 p.m. New York time
• The Nasdaq 100 rose 1.7 per cent
• The Dow Jones Industrial Average rose 1.3 per cent
• The MSCI World index rose 0.7 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.6 per cent to US$1.0844
• The British pound fell 0.4 per cent to US$1.2334
• The Japanese yen was little changed at 132.76 per dollar

Cryptocurrencies

• Bitcoin rose 0.9 per cent to US$28,416.49
• Ether rose 1.7 per cent to US$1,826.2

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.47 per cent
• Germany’s 10-year yield declined eight basis points to 2.29 per cent
• Britain’s 10-year yield declined three basis points to 3.49 per cent

Commodities

• West Texas Intermediate crude rose 1.6 per cent to US$75.56 a barrel
• Gold futures fell 0.5 per cent to US$1,987.50 an ounce