April 13 (Reuters) - U.S. stocks advanced on Thursday as economic data showed cooling inflation and a loosening labor market, fueling optimism that the Federal Reserve is nearing the end of its aggressive interest rate hike cycle.
All three major U.S. stock indexes rose sharply, with interest rate sensitive megacaps including Apple Inc (AAPL.O), Microsoft Corp (MSFT.O) and Amazon.com (AMZN.O) providing the most upside muscle and sending the tech-heavy Nasdaq up 1.9%, on track for its biggest one-day gain in nearly a month.
Data released before the bell showed a steeper-than-expected cooldown in producer prices and new claims for jobless benefits coming in above consensus. Both signal that the Fed's hawkish barrage of rate hikes, which began over a year ago, is working as intended.
"Inflation is going to come down faster than the Fed thinks it will, but ironically the banking crisis is bullish for a Fed pause, which is bullish for the market, particularly tech stocks," said Jay Hatfield, chief executive officer and Infrastructure Capital Management in New York.
The data comes on the heels of Wednesday's cooler-than-expected Consumer Price Index report, which raised the likelihood of yet another 25 basis point rate hike at the conclusion next month's FOMC policy meeting.
"The Fed will raise rates one more time in May; one and done," Hatfield added. "They are worried about the banking system, so that should help them get to the right answer.
"They'll start cutting in 2024."
Financial markets are pricing in a roughly one-in-three probability that the central bank will press the pause button and let the Fed funds target rate stand in the 4.75% to 5.00% range.
Investor focus now shifts to first-quarter earnings season, which jumps into full swing on Friday when a trio of big banks, Citigroup (C.N), JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N) report.
Analysts expect aggregate first-quarter S&P 500 earnings to come in 5.2% below the year-ago quarter, a stark reversal from the 1.4% year-on-year growth seen at the beginning of the quarter, according to Refinitiv.
At 2:05 p.m. ET, the Dow Jones Industrial Average (.DJI) rose 325.52 points, or 0.97%, to 33,972.02; the S&P 500 (.SPX) gained 49.03 points, or 1.20%, at 4,140.98; and the Nasdaq Composite (.IXIC) added 225.84 points, or 1.89%, at 12,155.18.
Among the 11 major sectors of the S&P 500, communication services (.SPLRCL) was up the most, while industrials (.SPLRCI) and materials (.SPLRCM), outperformers in recent sessions, suffered the steepest percentage declines.
Delta Air Lines Inc (DAL.N) shares fell 0.9% following the company's first-quarter profit miss.
Shares of Harley-Davidson Inc (HOG.N) slid 3.2% after the motorcycle maker announced Chief Financial Officer Gina Goetter was leaving the company at the end of April.
Groupon Inc (GRPN.O) jumped 3.4% after the company appointed Jiri Ponrt to succeed Damien Schmitz as chief financial officer.
Netflix Inc (NFLX.O) rose 4.1% after Wedbush said the streaming platform's revenue growth of new subscribers could drive up profitability.
Advancing issues outnumbered decliners on the NYSE by a 3.04-to-1 ratio; on Nasdaq, a 2.83-to-1 ratio favored advancers.
The S&P 500 posted eight new 52-week highs and one new low; the Nasdaq Composite recorded 58 new highs and 121 new lows.
