Stocks Gain, Led by Dow as Traders Look for Rate Insight

U.S. stocks were higher, with the Dow leading gains Wednesday, and the S&P 500 setting a closing record, paced by gains in drugmaker Merck, while investors looked towards the next piece of inflation data and Federal Reserve policymaker commentary for signals on the rate path.

Merck & Co. advanced as the best performer on the Dow after the U.S. Food and Drug Administration approved its therapy for adults suffering from a rare lung condition.

The blue-chip Dow sits roughly 1% away from breaking the 40,000 level for the first time.

Gains on the tech-heavy Nasdaq were capped by AI giant Nvidia, which lost ground for a second straight session. Shares were still up more than 80% on the year, however.

Recent data that showed hotter than expected inflation in the form of consumer prices (CPI) and producer prices (PPI) failed to markedly disrupt market expectations for a rate cut of at least 25 basis points (bps) from the Federal Reserve in June.

The Fed kept its projections for three rate cuts this year intact at its policy meeting last week, which central bank officials have largely stood by this week in comments.

The Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation gauge, is due on Good Friday, when the U.S. stock market will be closed.

"The Fed can and should take its time, largely because the economy is affording them that flexibility with the strength that we're seeing, and that premature rate cuts only probably set us up for a more adverse outcome," said Craig Fehr, head of investment strategy at Edward Jones in St. Louis.

"The real challenge for Fed officials has been massaging and guiding market expectations when they swing too far in one direction or another."

Later in the day, Fed Board Governor Christopher Waller is expected to speak at the Economic Club of New York later in the day.

According to preliminary data, the S&P 500 gained 45.68 points, or 0.88%, to end at 5,249.26 points, while the Nasdaq Composite gained 83.82 points, or 0.51%, to 16,399.52. The Dow Jones Industrial Average rose 484.20 points, or 1.23%, to 39,766.53.

All three major U.S. stock indexes were poised for quarterly gains, with the S&P on track for its biggest first quarter percentage gain since 2019.

Traders see a 70.4% chance the Fed will begin its easing cycle in June, according to the CME FedWatch Tool.

Rate sensitive utilities and real estate were the best performers among the 11 major S&P sectors, getting a lift as bond yields eased.

Among individual stocks, Trump Media & Technology Group jumped a day after its stellar Nasdaq debut.

GameStop plunged after the videogame retailer reported lower fourth-quarter revenue and said it had cut an unspecified number of jobs to reduce costs.