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Stock Market Today - 5/27: Stocks End Sharply Higher, Post Weekly Gains On 'Fed Pause' Bets

U.S. stocks posted strong weekly gains as slowing inflation data encouraged investors to bet on a pause in the Fed's rate hike strategy later this year.

Updated at 4:15 pm EDT

U.S. stocks ended sharply higher Friday, capping a strong week that marked the first weekly gain for the S&P 500 in two months after new data hinted at slowing inflation and sparking hopes the Federal Reserve could pause it's rate hikes later this summer.

The Dow Jones Industrial Average finished the final trading day before the Memorial Day long weekend up 576.16, or 1.8%, at 33,213.35.

The S&P 500 added 100.43, or 2.5%, to end at 4,158.27.

The tech-focused Nasdaq, which is down 25.85% for the year, ended the day up 390.48, or 3.3%, at 12,131.13.

For the week, the Dow gained 5.9%, the S&P 500 gained 6.2% and the Nasdaq gained 6.8%. The S&P had posted weekly declines for the past seven weeks.

Stocks have been caught in a sharp downward trend over the past two months, hammered by fears of high inflation, and Federal Reserve rate hikes which could slow the economy. The ongoing Russian invasion of Ukraine and disruptions to world energy and food markets have also weighed on markets. 

Updated at 11:30 a.m. EDT

U.S. stocks extended gains Friday, putting the S&P 500 on pace for its best weekly gain in two months, as investors bet that the Federal Reserve's suggestion of an autumn pause in rate hikes, paired with what could be a peak in inflation readings, will lift markets from one of their worst starts to the year since the 1930s.

Solid retail earnings have also indicated that consumers aren't ready to roll over amid the fastest inflation in forty years, adding to optimism that the underlying economy remains firm and the Fed will be able to engineer the 'soft landing' it desires from higher interest rates that tame inflation pressures.

An important piece of that task arrived this morning, with an 8:30 am Eastern time reading of the Fed's preferred inflation gauge, the core PCE Price Index, which eased for a second consecutive month from its multi-decade highs in February.

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The April core PCE Price Index rose 4.9% from last year, easing from the highest levels since 1983, and 0.3% on the month, the Bureau of Economic Analysis reported, a figure that was largely in line with Wall Street forecasts

The softer reading could add to bets that the Fed is prepared to pause rate hikes in the fall, following 50 basis point increases that are largely price-in for its June and July meetings, and confirm some analysts' assessments that domestic inflation has peaked.

"The overall economy is still underpinned by a very strong labor market and while challenges to margins have emerged for some big-box retailers, there are other signals in the economy that show consumers still have the ability to spend," said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management in Minneapolis. "Overall, markets were hovering near oversold territory and (Thursday's) rally was a result of walking back some of the recent recession fears," he added.

Bank of America's Flow Show suggests others are spotting the trend: nearly $22 billion has poured into U.S. equity funds this week, the most in more than 10 weeks, while the U.S. dollar index, a good gauge of global risk appetite, fell to a one month low of 101.684 in overnight trading. Benchmark 10-year Treasury bond yields -- which move inversely to prices -- slipped 5 basis points to 2.729% in early New York trading.

In overseas markets, European stocks added to yesterday's gain by closing 1.5% higher Frankfurt trading while the region-wide MSCI ex-Japan index jumped 2.09% in a follow-on rally from last night's close on Wall Street.

Gap Inc  (GPS) - Get Gap Inc. (The) Report shares ended up 4.3% after falling earlier in the session. The casual clothing retailer posted a wider-than-expected first quarter loss while slashing its full-year profit forecast.

Costco Wholesale  (COST) - Get Costco Wholesale Corporation Report shares ended up 1.2% after the big-box discount retailer posted weaker-than-expected same-store sales despite luring more members to its club with cheaper gasoline.

Staying in retail, Big Lots  (BIG) - Get Big Lots Inc. Report shares plunged 12% after  it posted a surprise first-quarter loss amid what it called "significant" cost and margin pressures brought by the fastest U.S. inflation in more than forty years.

On the other side of the ledger, Dell Technologies  (DELL) - Get Dell Technologies Inc. Class C Report shares surged 13% after the PC and laptop maker posted stronger-than-expected first-quarter earnings and boosted its near-term profit outlook.

Chipmaker Marvell Technology  (MRVL) - Get Marvell Technology Inc. Report, meanwhile, rose 6.7% trading after it posted better-than-expected first quarter earnings and a robust outlook for data center semiconductor demand.