US Stocks Cap a Winning Month          03/31 16:13

   Stocks rallied Friday to close out a winning March and first quarter of the 
year, feats that looked questionable just a couple weeks ago when Wall Street 
was tumbling in turmoil.

   NEW YORK (AP) -- Stocks rallied Friday to close out a winning March and 
first quarter of the year, feats that looked questionable just a couple weeks 
ago when Wall Street was tumbling in turmoil.

   The S&P 500 rose 1.4% to cap a 3.5% gain for the month. It also locked in a 
second winning quarter in a row after falling sharply most of last year on 
worries about high interest rates meant to get inflation under control.

   The Dow Jones Industrial Average rose 415 points, or 1.3%, while the Nasdaq 
composite climbed 1.7%. For the Nasdaq, big leaps for technology stocks drove a 
gain of 16.8% for the quarter, its best since the surge out of the 
coronavirus-caused crash in the spring of 2020.

   Friday's gains came after a report showed inflation across the United States 
slowed in February, though it was still high relative to history. A continued 
slowdown could give the Federal Reserve more leeway to take it easier on 
interest rates after jacking them higher at a furious pace over the last year.

   The threat of higher rates has been behind the stock market's struggles 
since it peaked in early 2022. High rates can undercut inflation but only by 
bluntly slowing the entire economy, which raises the risk of a recession. They 
also drag down prices for stocks, bonds and other investments.

   A blitz of economic reports earlier in the year suggesting stubbornly high 
inflation raised worries the Fed would have to keep rates even higher than 
feared for longer.

   A recession hasn't hit the economy, at least not yet, but the pressure of 
higher interest rates helped cause the banking industry to crack earlier this 
month.

   The second- and third-largest U.S. bank failures in history rocked markets 
after depositors rushed to pull their money out of Silicon Valley Bank and 
Signature Bank. The runs pushed investors to cast harsher scrutiny on banks 
globally in the hunt for seemingly weak links.

   Forceful actions by regulators have since helped to rebuild some confidence. 
Almost as importantly, traders have also built bets that the banking system's 
woes will force the Fed to stop hiking rates soon and even to begin cutting 
rates later this year.

   The overriding mood in the market seems to be that the "Fed blinked and off 
we rally into April" before waiting to see if a recession or new panics around 
commercial real estate or something else awaits in the second half of the year, 
investment strategist Michael Hartnett wrote in a BofA Global Research report.

   Expectations for an easier Fed have helped Big Tech stocks in particular 
because high-growth stocks are seen as some of the biggest beneficiaries of 
lower rates. That's helped to prop up the S&P 500, where Big Tech stocks play 
an outsized role because of their massive size. Apple, Microsoft and Google's 
parent Alphabet each posted double-digit gains for March.

   Strength in tech has helped to mask weakness for other parts of the market 
that are still down for the month but play smaller roles in indexes, such as 
smaller-sized stocks or financial companies.

   Some professional investors on Wall Street say the expectations for rate 
cuts are premature and could be setting the market up for disappointment. Cuts 
can act like steroids for markets, but they're likely coming only if the 
economy looks to be in serious trouble.

   The Fed, meanwhile, has hinted it envisions raising rates one more time 
before keeping them steady through this year. Friday's data suggests that could 
still be the case, economists said.

   "Elevated price pressures coupled with strong job growth that is restoring 
incomes and is supporting demand should keep the Fed on track to hike rates 
further over coming meetings," said Rubeela Farooqi, chief U.S. economist at 
High Frequency Economics.

   What makes the Fed's upcoming decisions particularly tricky is that the 
banking industry's troubles could act like hikes to interest rates on their own 
if they cause banks to pull back on lending. That in turn could stifle hiring 
and growth for the economy.

   All the drastically changing expectations for what the Fed will do have 
meant historic-sized moves for Treasury yields in the bond market.

   The yield on the two-year Treasury zoomed through particularly rattling 
moves. It was sitting above 5% at its highest level since 2007 earlier this 
month, when investors were bracing for the Fed to keep rates higher for longer.

   It then quickly plunged below 3.60% as bets built for the Fed to ease up 
because of the banking industry's troubles. Analysts said the moves were so 
violent because so many bets had piled up on the same side: for yields only to 
climb higher.

   The yield has since steadied somewhat. It fell to 4.04% Friday from 4.12% 
late Thursday.

   The 10-year yield, which helps set rates for mortgages and other important 
loans, fell to 3.48% from 3.55%. It also swung sharply through the quarter, but 
not by as much as the two-year yield. It was sitting above 4% earlier in the 
month.

   All told, the S&P 500 rose 58.48 points to 4,109.31 Friday. The Dow gained 
415.12 to 33,274.15, and the Nasdaq jumped 208.44 to 12,221.91.

   In markets abroad, stocks across Europe rose modestly after a report showed 
inflation in the 20 countries that use the euro currency slowed to the slowest 
level in a year, though food costs were still on the rise.

   Stocks rose modestly in Shanghai after a report said China's factory 
activity was stronger in March than expected. They also gained across much of 
the rest of Asia.