Stocks Rise as Consumer Spending Rebounds

(Bloomberg) -- Stocks powered higher on Thursday, buoyed by strong consumer spending data that eased concerns about the health of the world's largest economy.

Consumer Spending Surges

Consumer spending surged by 4.2% in the fourth quarter of 2024, marking the strongest pace since late 2021. This growth was driven by an uptick in motor vehicle sales, suggesting that consumers remain confident in the economy.

S&P 500 Gains

The S&P 500 Index climbed 0.8%, led by a 1.6% rise in the Russell 2000 Index of small-cap stocks. The Dow Jones Industrial Average also gained 0.6%, while the Nasdaq 100 Index rose 0.7%.

Tech Stocks Rebound

After a recent sell-off, technology stocks rebounded on Thursday. The Bloomberg Magnificent 7 Total Return Index, which tracks the performance of the largest U.S. technology companies, increased by 0.5%. Apple Inc.'s earnings, due after the closing bell, are eagerly awaited by investors.

Consumer Discretionaries Outperform

Consumer discretionary stocks, including retail and entertainment companies, outperformed the broader market. Target Corp. gained 2.3%, while Nvidia Corp. rose 1.9%. This suggests that consumers are still willing to spend on non-essential items.

Bull Market Broadening

The equal-weighted version of the S&P 500 Index, which gives equal weight to all companies regardless of their size, outperformed the traditional index by 1.3%. This indicates that the bull market is broadening and includes more companies beyond the large tech giants.

Interest Rates Steady

The Federal Reserve left interest rates unchanged on Wednesday as expected, but indicated that it would maintain its current policy for a few more months to assess economic data. This decision was supported by the strong consumer spending numbers.

Inflation Concerns Persist

While consumer spending is robust, inflation remains a concern for investors. The upcoming personal consumption expenditures (PCE) index, scheduled for release on Friday, is expected to show a slight increase in inflation.

Earnings Season in Focus

Earnings season is in full swing, with investors closely watching corporate results for signs of economic health. Apple Inc.'s earnings are a key focus, as the company could benefit from the recent developments in artificial intelligence.

Key Takeaway

The strong consumer spending data and the Fed's patient approach to interest rates are providing support for the stock market. Investors remain cautious about inflation and are monitoring the latest earnings reports for insights into the health of corporate America.