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Nasdaq, S&P 500 Reach Five-Month Closing Highs - U.S. Commentary

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Stocks fluctuated early in the session but moved mostly higher over the course of the trading day on Friday. With the upward move on the day, the Nasdaq and the S&P 500 reached their best closing levels in five months.

The major averages ended the day well off their highs of the session but still firmly in positive territory. The Dow climbed 138.93 points or 0.5 percent to 25,848.87, the Nasdaq advanced 57.62 points or 0.8 percent to 7,688.53 and the S&P 500 rose 14.00 points or 0.5 percent to 2,822.48.

With the gains on the day, the major averages moved notably higher for the week. The Dow jumped by 1.6 percent, while the S&P 500 surged up by 2.9 percent and the tech-heavy Nasdaq soared by 3.8 percent.

The strength on Wall Street came amid optimism about U.S.-China trade talks as well as indications of more Chinese economic stimulus.

Chinese Premier Li Keqiang pledged support for the slowing economy during his annual news conference at the end of the National People's Congress.

Li said the country could use reserve requirements and interest rates to prevent a sharper deceleration in the world's second-largest economy.

Traders largely shrugged off the release of some disappointing U.S. economic data, including a Federal Reserve report showing industrial production rose by much less than expected in the month of February.

The Fed said industrial production inched up by 0.1 percent in February after falling by a revised 0.4 percent in January.

Economists had expected production to climb by 0.4 percent compared to the 0.6 percent drop originally reported for the previous month.

The uptick in production came as a spike in utilities output and an increase in mining output was largely offset by a continued drop in manufacturing output.

"The further decline in manufacturing output in February confirms that the global industrial slowdown is now weighing more heavily on U.S. producers," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "With tighter fiscal and monetary policy constraining domestic demand, the weaker external environment is another reason to expect a sustained slowdown in economic growth this year."

A separate report from the New York Fed showed an unexpected slowdown in regional manufacturing growth in the month of March.

The New York Fed said its headline general business conditions index fell to 3.7 in March after climbing to 8.8 in February.

While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to rise to 10.0.

The index remained below 10 for the third straight month, which the New York Fed said suggests growth has remained quite a bit slower so far this year than it was for most of 2018.

Meanwhile, preliminary data released by the University of Michigan on Friday showed a significant improvement in U.S. consumer sentiment in the month of March.

The report said the consumer sentiment index jumped to 97.8 in March from the final February reading of 93.8. Economists had expected the index to rise to 95.3.

The bigger than expected increase by the index came as more positive assessments from lower income households more than offset a drop in sentiment among households with incomes in the top third.

"Since households with incomes in the top third account for more than half of all consumer expenditures, cautious observers will conclude that the latest data are another indication that the end of the expansion is on the distant horizon," said Surveys of Consumers chief economist Richard Curtin.

He added, "While that may well be true, the current level of consumer sentiment at 97.8 hardly indicates an emerging downturn."

Sector News

Semiconductor stocks showed a substantial move to the upside on the day, driving the Philadelphia Semiconductor Index up by 2.9 percent to a six-month closing high.

Broadcom (AVGO) led the sector higher after the chipmaker reported fiscal first quarter earnings that exceeded analyst estimates.

Considerable strength also emerged among computer hardware stocks, as reflected by the 1.4 percent gain posted by the NYSE Arca Computer Hardware Index.

Biotechnology and tobacco stocks also saw significant strength on the day, while natural gas and oil service stocks showed notable moves to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan's Nikkei 225 Index climbed by 0.8 percent, while China's Shanghai Composite Index jumped by 1 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index surged up by 1 percent, the German DAX Index advanced by 0.9 percent and the U.K.'s FTSE 100 Index rose by 0.6 percent.

In the bond market, treasuries moved notably higher in reaction to the mostly disappointing economic data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dropped by 3.7 basis points to a two-month closing low of 2.593 percent.

Looking Ahead

The Federal Reserve's monetary policy meeting is likely to be in the spotlight next week, although the central bank is widely expected to leave interest rates unchanged.

Traders are likely to keep an eye on the Fed's accompanying statement for clues about the outlook for future rate decisions.

Reports on homebuilder confidence, factory orders, and existing home sales may also attract some attention next week.

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