Sentiment in equity markets remained positive last week as fears of financial contagion have continued to recede. Gains were led by big technology companies – which were under severe selling pressure throughout 2022. The Nasdaq 100 index has gained more than 11% over the past two weeks and is again in bull market territory, as it is 24% above its key October 2022 low.

The recent bank failures rattled financial markets and forced U.S. authorities to bolster market liquidity with banks tapping record levels of emergency liquidity from the central bank. This took some of the pressure off the Federal Reserve on the inflation front at its last policy meeting in March.

As the Fed’s emergency lending to banks stabilised, Fed officials are likely to assess incoming economic data meeting to meeting before deciding on a final 25-basis point hike.

On Friday the Commerce Department released its latest monthly update on consumer prices measured by the PCE price index, which is the Federal Reserve’s preferred gauge of inflation. The U.S. core monthly PCE rose by 0.3% in February, following a 0.5% increase in the previous month.

The core annual PCE rose by 4.6% in February, coming below expectations, and slowing from 4.7% the prior month, marking the lowest reading in 15 months. While the decline and the downward trend in core PCE is welcomed, the pace of decline is proving to be more stubborn and price growth remains far too high for the Fed’s liking. Nonetheless, the slowing inflation supports hopes that the Fed’s tightening cycle might be coming to an end soon.

In March the Fed increased rates by 25-basis point with officials saying that more tightening might be needed, explicitly saying that inflation is a top priority while monitoring the risks from the banks collapses earlier in the month.

Tech stocks have staged a good rally this year after a dismal 2022, mainly on the prospect that the Federal Reserve may be close to ending its interest-rate hikes. According the FedWatch tool, futures markets are still broadly split on the chances of another 25-basis point increase in May.

The wave of instability across the financial sector in March, supported investors’ bets that the Federal Reserve will halt its rate hikes soon. An end to rate increases would be positive for tech stocks, as rising borrowing costs tend to weigh on tech companies’ future earning potential and valuations. Steady declines in the U.S. dollar and recent tech firms cost cutting incentives, increase the tech stock appeal.

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