NEW YORK – Wall Street posted one of its best days of the year on Thursday after data showed the U.S. economy is holding up better than expected, thanks in particular to American consumers.
The S&P 500 gained 1.6 percent, the fourth-best day of the year and the sixth straight gain as the U.S. stock market rebounds after a scary few weeks. It is now back to within 2.2 percent of its all-time high set last month, after briefly falling nearly 10 percent below it.
The Dow Jones Industrial Average rose 554 points, or 1.4%, while the Nasdaq Composite gained 2.3% as Nvidia and other big tech stocks recovered from their setbacks last month.
US Treasury yields also jumped following the encouraging economic report. One of the reports said US shoppers increased their retail spending last month by far more than economists expected, while another report said fewer US workers filed for unemployment benefits.
A year ago, such reports could have sent stock markets reeling over fears of rising inflation. But good news for the economy is good news for Wall Street, especially after a report showed that U.S. employers cut hiring by far more than expected last month.
That jobs report flop raised concerns that the U.S. economy could collapse under the weight of the Federal Reserve’s high interest rates and contributed to turmoil in stock markets around the world. But Thursday’s reports suggest that a perfect landing is still possible: one in which the Fed uses high interest rates to slow economic growth just enough to curb inflation, but not so much that it causes a recession.
“The growth fear is not over yet, but it is a little less scary,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Inflation has also improved since it topped 9% two summers ago, underscored by reports on consumer and wholesale prices earlier this week, clearing the way for the Federal Reserve to soon make the rate cuts that Wall Street loves so much.
Walmart added to the optimism after the company reported a higher-than-analysts-expected profit in the spring, sending its shares up 6.6 percent. The retail giant also raised its full-year sales forecast and suggested that U.S. shoppers are expected to continue spending. That spending by U.S. consumers makes up the bulk of the economy.
It was just one of several large companies that joined the ranks of companies whose profits exceeded analysts’ expectations in the spring.
Deere & Co. shares rose 6.3% after the seller of backhoe loaders, bulldozers and other equipment reported higher-than-expected profits and sales despite tough conditions in the global agricultural and construction sectors.
Cisco Systems’ earnings and revenue significantly exceeded analysts’ forecasts last quarter, and the company’s shares rose 6.8% after the networking equipment maker also announced it would cut thousands of jobs as it shifted to higher-growth technology areas such as artificial intelligence.
Ulta Beauty shares rose 11.2 percent, leading the market, after Warren Buffett’s Berkshire Hathaway announced it had acquired a stake in the retailer.
Overall, the S&P 500 rose 88.01 points to 5,543.22. The Dow rose 554.67 to 40,563.06 and the Nasdaq Composite rose 401.89 to 17,594.50.
On the bond market, the yield on 10-year government bonds climbed from 3.84 percent to 3.91 percent in response to strong economic data.
The yield on two-year Treasury bonds, which is more in line with expectations regarding the Federal Reserve’s actions, rose from 3.96% to 4.09%.
Traders continue to expect the Federal Reserve to cut its benchmark interest rate at its next meeting in September, the first such cut since the Covid-19 crash in 2020. However, they now largely expect the Fed to cut rates by the usual quarter of a percentage point, according to data from CME Group.
A week ago, many traders had predicted an even more drastic cut of half a percentage point because they feared a slowdown in the US economy.
The Fed made it clear what a tightrope it was walking when it began raising interest rates sharply in March 2022: being too aggressive would stall the economy, while being too soft would fuel inflation and hurt everyone.
Signs of a robust U.S. economy helped boost smaller stocks in particular on Thursday. Smaller companies have more to thank for the strength of the U.S. economy than large multinationals, and the Russell 2000 index of smaller stocks rose 2.5 percent, helping lead the market.
Smaller stocks have been even more erratic than the rest of the market, rising more than the S&P 500 when data suggested the U.S. economy was doing well and interest rates would soon fall. But when pessimism grew, prices fell even more.
Indices also rose on foreign stock markets in large parts of Asia and Europe.
Japan’s Nikkei 225 rose 0.8 percent after data showed the country’s economy returned to growth in the spring. The British economy also grew last quarter, a welcome sign after a difficult period, and the FTSE 100 rose 0.8 percent in London.
Information for this article was contributed by Yuri Kageyama of The Associated Press.
