Wall Street Gains on Inflation Data

A Commerce Department report showed U.S. consumer spending barely rose in November, while inflation cooled further, but not enough to discourage the U.S. Federal Reserve from driving interest rates to higher levels next year.

The personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 0.1% last month after climbing 0.4% in October.

A benchmark survey showed U.S. consumers expect price pressures to moderate notably in the next year, with the one-year inflation outlook dropping to the lowest in 18 months in December.

Wall Street indexes had sold off sharply on Thursday after revised data had indicated a resilient American economy, fueling worries that the Federal Reserve could keep hiking rates for longer and end up pushing the economy into a recession.

But Friday's data and the fact that it came in roughly in line with expectations, eased some of those concerns for now, according to Shawn Cruz, head trading strategist at TD Ameritrade in Chicago, Illinois.

"This is a clear indication that this is a bad news is good news kind of market. The market wants the Fed to feel what they're doing has been enough," said Cruz.

"It is on edge over what the path for Fed policy is going to be for next year as that's going to drive the economy and corporate earnings."

Investors have been jittery since last week as the Fed indicated that it remains stubbornly committed to achieving the 2% inflation goal and projected rate hikes to above 5% in 2023, a level not seen since 2007.

Joe Quinlan Head of CIO Market Strategy at Merrill and Bank of America Private Bank also called Fed hawkishness "the big cloud on the horizon."

"Today is more of a muted response to good data but still it's not all clear, mission accomplished," he said, adding that analyst earnings estimates for 2023 are likely too high.

According to preliminary data, the S&P 500 gained 22.72 points, or 0.59%, to end at 3,845.11 points, while the Nasdaq Composite gained 21.88 points, or 0.19%, to 10,495.93. The Dow Jones Industrial Average rose 178.71 points, or 0.54%, to 33,206.20.

TDAmeritrade's Cruz also noted that thin trading volume may have created more exaggerated moves Thursday and Friday in the last sessions ahead of the long weekend, with U.S. markets closed on Monday after the Christmas holiday.

Energy shares stood out as the biggest advancers throughout the session as oil prices gained following news of Moscow's plans to cut crude output.

Tesla Inc.'s shares had touched a more than two-year low in volatile trading as boss Elon Musk's promise to not sell his shares for at least two years did not reassure investors.

Dow Jones parent News Corp gained sharply after a report that billionaire businessman Michael Bloomberg was interested in acquiring either Dow Jones or the Washington Post.