Stocks surged higher Friday afternoon as investors waited for developments from Washington, D.C. on the debt-ceiling deliberations and digested the latest corporate earnings as a new wave of AI optimism boosted tech stocks.
All three major indexes ended the trading day higher with the Nasdaq pacing gains.
The S&P 500 (^GSPC) closed 1.3% higher, the Dow Jones Industrial Average (^DJI) was up more than 300 points, or 1%, while the technology-heavy Nasdaq Composite (^IXIC) gained more than 2%.
The Nasdaq and S&P 500 both notched weekly gains with Friday's rally.
On Friday morning, Reuters reported that President Joe Biden and Speaker of the House Kevin McCarthy are "closing in on a deal" to extend the government's debt ceiling for two years.
"Negotiators appear to be closing in on an agreement," Goldman Sachs's economic research team led by Jan Hatzius wrote in a note to clients on Thursday night.
"While it is hard to predict when an announcement could come, we think the odds are highest that a deal is announced late Friday (May 26) or on Saturday (May 27). If so, this would likely allow a House vote late Tuesday (May 30) or Wednesday (May 31). The Senate also needs to pass the deal, though procedural obstacles there are unlikely to be what prevents timely enactment," they added.
The Nasdaq rallied to close 1.7% higher on Thursday as Nvidia's (NVDA) blowout quarter sent the chip giant's stock soaring more than 24%.
Earnings continued to move stocks on Friday morning as well.
Marvell Technology (MRVL) stock rose more than 30% on Friday as the chipmaker joined Nvidia in sharing positive artificial intelligence news. Marvell believes its revenue attributable to AI could double in the next year.
"AI has emerged as a key growth driver for Marvell," Marvell CEO Matt Murphy said in the company's earnings release. "While we are still in the early stages of our AI ramp, we are forecasting our AI revenue in fiscal 2024 to at least double from the prior year and continue to grow rapidly in the coming years."
Chip names including Broadcom (AVGO), Ambarella (AMBA), Skyworks (SWKS), and Micron (MU) were all up more than 5% on Friday. The PHLX Semiconductor Index (^SOX) was also up more than 5%.
Elsewhere on the earnings front, Gap (GPS) stock rose more than 10% after the apparel retailer posted a surprise profit late Thursday. Meanwhile, shares of Ulta Beauty (ULTA) fell as much as 13% after the company warned of slowing growth trends, even though the beauty store chain beat Wall Street's revenue and earnings per share expectations for the first quarter.
"Category growth is healthy but moderating as we lap two years of unprecedented growth. And as category growth normalizes, promotional activity is increasing," Ulta CEO Dave Kimbell said on the company's earnings call.
On the economic data side, the PCE price index — the Federal Reserve's preferred inflation measure — came in hotter than expected and flipped market expectations for the central bank's next policy announcement on June 14.
Core PCE rose to 4.7% over last year in April, more than the 4.6% increase expected by economists and an acceleration from the 4.6% annual jump seen in March. Data from the CME Group as of Friday morning showed investors placing a 58% chance on the Fed raising rates by another 0.25% next month following this release.
"We will be sticking with the forecast for the Fed to keep rates unchanged through the remainder of this year," Ryan Sweet, chief US economist at Oxford Economics, wrote on Friday. "However, odds are rising that we will be altering the forecast for the fed funds rate in 2024, reducing the number of rate cuts."
Data on personal income and spending also showed consumers remained resilient in April with spending rising 0.8% last month, more than the 0.3% increase expected by economists. Durable goods orders also delivered a surprise with April's preliminary reading showing an increase of 1.1% last month; economists had expected this data to show a 1% drop.
Consumer sentiment data for May from the University of Michigan, however, showed the debt ceiling standoff has dampened the economic outlook for many Americans, with sentiment dropping 4 points from April.
"Consumer sentiment slid 7% amid worries about the path of the economy, erasing nearly half of the gains achieved after the all-time historic low from last June," said Joanne Hsu, director of the survey of consumers.
"This decline mirrors the 2011 debt ceiling crisis, during which sentiment also plunged. This month, sentiment fell severely for consumers in the West and those with middle incomes. The year-ahead economic outlook plummeted 17% from last month."
Josh is a reporter for Yahoo Finance.