US stocks hit 9-month high on solid data and debt ceiling hopes

US stocks hit a nine-month high on Friday, propelled by solid economic data and growing investor optimism that a deal on the US debt ceiling will land in the coming days.

The S&P 500 closed 1.3 per cent higher, its highest level since mid-August, in a relatively broad rally in which investors scooped up stocks more sensitive to economic growth prospects and spurning traditionally defensive sectors such as utilities, healthcare and consumer staples. The benchmark index added 0.3 per cent in the week, notching its second straight week of gains.

The Nasdaq Composite rose 2.2 per cent, boosted by the rally around AI-related stocks for the second successive day. The tech-heavy index advanced 2.5 per cent to notch a five-week winning streak.

Investors continued to watch developments in Washington, where policymakers signalled they were inching towards a deal on raising the debt ceiling before a June deadline to avoid an unprecedented government default.

Kevin McCarthy, the Republican House Speaker, said on Friday morning he was “going to work as hard as we can to try to get this done, get more progress today and finish the journey”.

Meanwhile, Treasury yields rose, with traders boosting their bets that the Federal Reserve would continue to increase interest rates, as data showed the US consumer — the biggest engine of the domestic economy — appeared resilient.

Personal consumption, adjusted for inflation, leapt by a forecast-beating 0.8 per cent in April from a 0.1 per cent increase in March. That echoed data earlier this week when first-quarter economic growth was revised higher, partly because of strong consumer spending.

Meanwhile, the central bank’s preferred measure of inflation came out stronger than expected in April. The core personal consumption expenditures index, which strips out volatile food and energy costs, rose 0.4 per cent in the past month, surpassing expectations it would match its 0.3 per cent increase in March.

Other data showed orders for long-lasting goods also rose more than expected in April. Within this report, non-defence capital goods excluding aircraft — considered a proxy for business investment — jumped 1.4 per cent, defying expectations for a contraction.

Recent data has turned traders’ expectations for the Fed’s June rate decision. On Tuesday, about two-thirds of traders expected the central bank not to raise rates, whereas the same proportion forecast an increase on Friday.

Matt Maley, chief market strategist at Miller Tabak + Co, said the strong data, combined with progress on the debt-ceiling negotiations, indicated a recession may arrive “later rather than sooner”, adding optimism to investors’ outlooks on Friday.

“However, I do worry that once the debt-ceiling issue gets resolved, investors are going to wake up to the fact that interest rates are rising again. That should create some headwinds once we move into the month of June,” he said.

The yield on policy-sensitive two-year bills edged up to 4.57 per cent. Bond yields fall as prices rise.

Among stocks, the technology sector remained a bright spot following blowout chipmaker earnings.

Marvell Technology jumped more than 32 per cent after it said its AI revenue was expected to double in fiscal 2024 compared with the previous year.

The announcement came a day after Nvidia reported much higher than expected quarterly earnings, because of soaring demand for chips used in generative artificial intelligence systems.

The Philadelphia Semiconductor index has added about 40 per cent since the start of the year, driven by the booming AI industry.

“The equity market performance is very narrow,” said Emiel van den Heiligenberg, head of asset allocation at LGIM. “Only technology stocks are performing — ex[cluding] those technology stocks, the S&P is flat.”

In Europe, the region-wide Stoxx 600 added 1.1 per cent and France’s CAC 40 added 1.2 per cent. London’s FTSE 100 rose 0.7 per cent.

Turkey’s lira fell to 20 against the US dollar for the first time, in the latest sign of mounting pressure on the country’s economy ahead of Sunday’s runoff election. President Recep Tayyip Erdoğan, who has led Turkey for two decades, is expected to win this weekend’s second-round vote.

Oil prices rose following mixed messages from Opec+ member states about future production. Brent crude, the international benchmark, rose 1.1 per cent to $77.09 a barrel, while West Texas Intermediate, the US equivalent, rose 1.4 per cent to $72.84 a barrel.

Russia’s president Vladimir Putin and the country’s deputy prime minister had said further production cuts were unlikely at the Opec+ meeting next month.

Asian stocks were subdued, with Hong Kong’s Hang Seng index falling 1.9 per cent while China’s CSI 300 was flat.