The major domestic equity indexes closed out the final trading day of the first quarter on a positive note on Friday and as the S&P 500 index chalked up its best quarterly gain since 2009. The increase was in no small part due to the optimism over the latest round of trade talks between the United States and China.

The two sides said they made progress in trade talks that concluded on Friday in Beijing. The talks, aimed at resolving a nearly nine-month trade dispute between the world’s two largest economies, were called “candid and constructive” by Washington.

A Chinese delegation led by Vice Premier Liu He will head to Washington next week for another round of talks.

The benchmark S&P 500 rose 13.1 percent in the quarter, its largest quarterly gain since the third quarter of 2009 and its best first quarter since 1998.

Trade-sensitive industrials rose 1 percent, while chipmakers, which have a large revenue exposure to China, also gained, with the Philadelphia chip index up 1.6 percent. The broader technology sector gained 1 percent.

For the quarter, the Dow gained 11.2 percent, its largest quarterly gain since 2013, while the Nasdaq rose 16.5 percent for its best quarter since 2012.

All three major indexes posted gains of at least 1 percent each for the week and registered gains for the month as well.

Ride-hailing startup Lyft gained more than 20 percent after making its debut on the Nasdaq. The stock ended up 8.7 percent.

Data released on Friday showed consumer spending barely rose in January and income increased modestly in February, suggesting the economy was losing momentum after growth slowed in the fourth quarter.

Growth fears were triggered last week, when the Federal Reserve abandoned projections for interest rate hikes in 2019 and the Treasury yield curve inverted for the first time since 2007, historically a harbinger of recession.

However, the yield curve between three-month bills and 10-year notes turned slightly positive on Friday, after being inverted for a week.

With the first quarter earnings reporting season just about two weeks away, the Street is bracing for what may be the first corporate profit decline since 2016. Quarterly earnings could fall as much as 1.9 percent from a year earlier, according to Refinitiv data.

Approximately 7.41 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.52 billion share average over the past 20 trading days.

Day’s Economic Data

According to a report by the Commerce Department released Friday morning, consumer spending barely rose in January and income increased modestly in February, suggesting the economy was fast losing momentum after growth slowed in the fourth quarter.

Price pressures were also benign during January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. So, it was no surprise when the Fed abandoned projections for any interest rate hikes this year. The economy is losing steam as the stimulus from $1.5 trillion in tax cuts as well as increased government spending dissipates.

Consumer spending, which accounts for more than two-thirds all domestic economic activity, edged up 0.1 percent as households cut back on purchases of motor vehicles. Spending fell 0.6 percent in December.

When adjusted for inflation, consumer spending gained 0.1 percent in January after dropping 0.6 percent in December.

The weak consumer spending report extended the run of soft data ranging from housing starts and manufacturing that have flagged a sharp slowdown in growth early in the first quarter. 

The economy’s outlook is also being overshadowed by slowing global growth, Washington’s trade war with China and uncertainty over Britain’s departure from the European Union.

Gross domestic product forecasts for the first quarter are as low as a 0.9 percent annualized rate. The economy grew at a 2.2 percent pace in the fourth quarter after expanding at a brisk 3.4 percent rate in the July-September period.

However, the Fed’s decision to shelve further monetary policy tightening could prop up the interest-rate-sensitive housing market. A second report on Friday from the Commerce Department showed new home sales rose 4.9 percent to a seasonally adjusted annual rate of 667,000 units in February, the highest level since March 2018.

The housing market, however, accounts for a small fraction of the economy. A recovery in the sector, which hit a soft patch last year, will probably not be enough to blunt the impact on growth from slowing consumer spending and manufacturing.

A third report from the University of Michigan showed a rise in consumer sentiment in March. Economists, however, did not expect this to translate into stronger consumer spending as other confidence measures softened during the month.

In January, spending on goods fell 0.2 percent after falling 2.4 percent in December. It was the second straight monthly decline in spending on goods and reflected a decrease in motor vehicle purchases.

Outlays on services rose 0.2 percent as consumers paid more for financial services and insurance, after increasing 0.3 percent in December.

With demand softening, inflation pressures were tame in January. The personal consumption expenditures (PCE) price index fell 0.1 percent, reversing December’s 0.1 percent gain. In the 12 months through January, the PCE price index rose 1.4 percent, the smallest increase since September 2016, after increasing 1.8 percent in December.

Excluding the volatile food and energy components, the PCE price index rose 0.1 percent in January after rising 0.2 percent in the prior month. That lowered the year-on-year increase in the so-called core PCE price index to 1.8 percent from 2.0 percent in December.

The core PCE index is the Fed’s preferred inflation measure. It did manage to rise to the Fed’s 2 percent target in March last year for the first time since April 2012.

In February, personal income increased 0.2 percent after dipping 0.1 percent in January. Incomes have been volatile in recent months because of one-off factors, including government payments to farmers caught in the U.S.-China trade war.

Wages rose 0.3 percent in February, matching January’s gain. Savings decreased to $1.19 trillion last month from $1.22 trillion in January.