Wall Street closes at fresh 2023 highs as inflation data, the Fed eyed. In spite of the small gains on Monday, U.S. equities closed the year at record highs. This week’s key market events, including the Federal Reserve’s policy statement and inflation data, will significantly impact investor expectations of the direction of interest rates.

Market observers are beginning to conclude that the central bank has completed its cycle of interest rate hikes and may lower rates in the first half of 2019. These predictions contributed to the recent surge in equities that drove all three major indices to their highest closing levels.

Although markets had been pricing in a better than 50% possibility of a rate decrease by the Fed in March last week, statistics on Friday revealed an acceleration of job growth and a decline in the unemployment rate. Additionally, a separate survey revealed a decline in consumer inflation expectations. The statistics tempered expectations for a March drop and encouraged confidence that inflation may continue to decline without bringing the economy to a standstill.

Investors will be watching the Producer Price Index (PPI) and the Federal Reserve’s final interest rate decision of the year on Wednesday, after which comes the Consumer Price Index (CPI) data that is due on Tuesday and is predicted to show headline inflation staying constant in November.

“I think there’s just a need to wait and watch; there’s no need to respond in advance of any of those three occurrences. According to Ken Polcari, managing partner of Kace Capital Advisors in Boca Raton, Florida, the tendency will only continue to rise.

“Certainly if the CPI number comes in softer, if it’s weaker than what the expectation is, that will be quite bullish because it will just speak to the slowing inflation, Goldilocks kind of landing story.”

The S&P 500 (.SPX) gained 18.07 points, or 0.39 percent, to 4,622.44, and the Nasdaq Composite (.IXIC) gained 28.51 points, or 0.20 percent, to 14,432.49. The Dow Jones Industrial Average (.DJI) increased by 157.06 points, or 0.43%, to 36,404.93.

With expectations of a March cut of at least 25 basis points (bps), or roughly 43%, and a nearly 75% chance for May, markets have nearly fully priced in the central bank, maintaining rates steady at Wednesday’s announcement. However, there are still uncertainties regarding the timing of the first rate cut. This is according to CME’s FedWatch Tool.

The Bank of England (BOE) and the European Central Bank (ECB) are both scheduled to deliver policy decisions later this week.

Thanks to an 8.99% increase in Broadcom (AVGO.O), the PHLX semiconductor index (.SOX) closed at its highest level since January 5, 2022. Semiconductors gained 3.4%. Citigroup had resumed coverage of the chipmaker with a “buy” recommendation.

According to reports, Cigna (CI.N.) surged 16.68% after the health insurer announced a $10 billion share repurchase plan and withdrew its attempt to negotiate the acquisition of rival Humana (HUM.N.). Shares of Humana fell 1.04%.

Nike’s (NKE.N) increase of 2.33% helped support the Dow following the brokerage Citigroup’s upgrading of the company from “neutral” to “buy.”.

Among other movers, Macy’s (M.N.) surged 19.44% on a bid of $5.8 billion to take the department store giant private, reportedly from an investment group that included Brigade Capital and Arkhouse Management.

On the NYSE, advances outweighed decliners by a ratio of 1.2 to 1, and on the Nasdaq, decliners outpaced advancers by the same ratio.

While the Nasdaq registered 197 new highs and 143 new lows, the S&P 500 recorded 54 new 52-week highs and no new lows.

The volume of shares traded on U.S. exchanges was 11.32 billion, which was lower than the average of 10.89 billion for the whole session for the previous 20 trading days.