S&P 500 closes higher to secure strongest Q1 since 2019

By Chuck Mikolajczak

NEW YORK (Reuters) -The S&P 500 closed out the week with modest gains on Thursday, with the benchmark index notching its strongest first quarter in five years, as investors digested the latest batch of economic data while looking towards the next inflation reading.

Each of the three main U.S. indexes were set for solid quarterly gains, led by a climb of more than 10% for the S&P 500, aided by optimism over artificial intelligence (AI) related stocks and expectations the U.S. Federal Reserve will begin to cut interest rates this year.

The blue-chip Dow sat less than 1% away from breaching the 40,000 level for the first time.

Data on Thursday showed the U.S. economy grew faster than previously estimated in the fourth quarter, partly due to strong consumer spending, while a separate report showed initial jobless claims indicated the labor market remains on solid footing.

"The economy is in pretty good shape, the consumer is in pretty good shape and still spending, unemployment is still on the low side, and there continues to be pockets where the economy is thriving ... So there's money that is wanting to be spent in a variety of different ways," said George Young, portfolio manager at Villere & Company in New Orleans.

"And then you've got that carrot that the Fed's kind of holding out there saying, we may just be lowering and we may just be lowering, and everybody's trying to parse their words."

While U.S. equity markets will be closed for the Good Friday holiday, the focus will be on the release of the Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation gauge, for clues on the timing and size of rate cuts this year from the central bank.

According to preliminary data, the S&P 500 gained 6.81 points, or 0.13%, to end at 5,255.30 points, while the Nasdaq Composite lost 20.06 points, or 0.12%, to 16,379.46. The Dow Jones Industrial Average rose 36.16 points, or 0.09%, to 39,796.24.

Overnight, Fed Governor Christopher Waller said recent disappointing inflation data affirms the case for the central bank to hold off on cutting its short-term interest rate target, but did not rule out trimming rates later in the year.

Markets are pricing in a roughly 64% chance the Fed will cut rates by at least 25 basis points (bps) in June, according to CME's FedWatch Tool.

While communication services, energy and tech were the best performing of the 11 major sectors this quarter, only real estate suffered a decline.

Walgreens Boots shares rose after its quarterly earnings in which it recorded an impairment charge on its investment in clinic operator VillageMD.

Home Depot slipped after the home improvement retailer said it would buy building materials supplier SRS Distribution in an $18.25 billion deal in its largest acquisition.

Estee Lauder jumped after BofA Global Research upgraded the cosmetics giant's rating to "buy" from "neutral".

(Reporting by Chuck Mikolajczak; Editing by Aurora Ellis)