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U.S. stocks end sharply higher on debt ceiling optimism

STORY: U.S. stocks finished sharply higher on Friday as talks on raising the U.S. debt ceiling progressed, and chip stocks surged for a second straight day on optimism about artificial intelligence.

The Dow gained 1%, the S&P 500 jumped 1.3% and the Nasdaq soared 2.2% to close at its highest level since August of 2022.

After several rounds of talks, President Joe Biden and top House Republican Kevin McCarthy appeared to be nearing a deal to increase the government's $31.4 trillion debt limit for two years.

AI euphoria carried over a day after chipmaker Nvidia’s blowout earnings lifted all AI-related tech stocks.

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Shares of Marvell Technology jumped Friday after the chipmaker said it would double its annual revenue related to AI.

That helped boost Nvidia’s shares another 2.5%, a day after an eye-popping 24% gain for the stock, inching the company’s market valuation even closer to the $1 trillion mark.

Data on Friday showed consumer spending increased more than expected in April and inflation picked up, putting the Federal Reserve “on notice” that it may have to raise interest rates again next month, says Kevin Nicholson, Global Fixed Income Chief Investment Officer at RiverFront Investment Group.

“Going into this morning, the odds were that the Fed was going to pause in June. And if you looked at Fed funds futures, it was about a 62% chance that they were going to pause and about a 38% chance that they would actually raise rates in June by 25 basis points. Now, after that spending number came out this morning, personal spending came out, this morning, we saw that flip flop. Now the odds are for a 65% chance of a rate hike in June and a 35% chance of nothing.”

As for other movers, Ford Motor Company jumped 6.2% after the automaker signed a deal allowing customers to access more than 12,000 Tesla Superchargers in North America in early 2024. Tesla jumped 4.7%.