U.S. stocks closed sharply higher on Thursday, led by consumer and technology stocks, after a batch of better earnings reports from retailers and mostly benign economic data helped assuage investor concerns about a slowing economy.
Federal Reserve minutes released Wednesday also stoked speculation about a pause to reassess interest rate hikes later in the year.
How did stocks trade?
- The Dow Jones Industrial Average DJIA, +1.61% rose 516.91 points, or 1.6%, to end at 32,637.19.
- S&P 500 SPX, +1.99% gained 79.11 points, or 2%, closing at 4,057.84.
- Nasdaq Composite COMP, +2.68% advanced 305.91 points, or 2.7% finishing at 11,75.
With its gains on Thursday, the Dow recorded its longest winning streak since March 18, according to Dow Jones Market Data.
What drove the markets?
U.S. stock indexes finished sharply higher, building on Wednesday’s gains, as minutes from the Fed’s latest meeting signaled that the central bank will monitor economic data for signs of weakness as it looks to head off high inflation.
While Fed officials still looked poised to pull the trigger on planned 50 basis-point interest rate hikes in June and July, as policy moves “expeditiously” toward the projected neutral rate of interest, analysts noted they also look concerned about avoiding a hard landing for the economy.
“Heading into the holiday weekend, it’s a nice reprieve to see things in the green,” said Northern Trust Wealth Management’s Kei Sasaki, a senior portfolio manager, by phone. “We think the markets, as well as investor sentiment, maybe had a bit of a sigh of relief,” Sasaki said, of the Fed minutes.
A view has emerged that after interest rate hikes this summer, the Fed could have more wiggle room to reassess its planned rate rises this year, particularly if economic growth shows signs of sputtering or the labor market starts to falter.
“This coincides with some of the things that have been facing investors, including anxiety as some retailers report lackluster results,” Sasaki said, adding that if consumer spending is slowing down, “that’s when recessionary fears kick in.”
As summer begins and the latest corporate earnings season draws to a close, there will be fewer negative catalysts to rattle markets.
“There’s a lack of scheduled negative news, although something negative could also come out of the blue,” said Mohannad Aama, a longtime markets strategist and professor at Rutgers University.
One potential risk on the horizon is Costco COST, +5.65%, which is expected to report earnings after the close on Thursday. Recent reports from rival retailers like Target TGT, +4.33% and Walmart WMT, +2.13% rattled markets earlier this month.
However, investors did see some strong news from retailers Thursday as Dollar Tree DLTR, +21.87%, Dollar General DG, +13.71% and Macy’s M, +19.31% stocks rocketed higher — their shares climbed 21.9%, 13.7% and 19.3% respectively — breaking a trend of softening guidance among prominent retailers.
Despite economic data released earlier in the week that suggests the economy is slowing, “beaten up retail shares are finding investor interest,” said Quincy Krosby, chief equity strategist at LPL Financial, in emailed comments.
Furthermore, the “notion that the consumer, 70 percent of the U.S. economy, is on a spending strike, is overblown as earnings reports coupled with positive guidance indicate otherwise,” Krosby said.
In fresh U.S. economic data, new U.S. jobless claims fell by 8,000 last week to 210,000, signaling that layoffs remain extremely low and the economy is still expanding despite more headwinds. The latest reading on U.S. first-quarter GDP showed the economy contracted 1.5% in the first quarter, which was slightly more than the 1.4% contraction reported during the first reading — although the change wasn’t large enough to induce panic.
Which companies were in focus?
- Shares of Broadcom Inc. AVGO, +3.58% gained 3.6% after a $61 billion deal for cloud company VMware Inc. VMW, +3.17% emerged, though speculation has been circulating the market for a few days. VMware shares rose 3.2%.
- Twitter Inc. TWTR, +6.35% shares added 6.4% after Tesla TSLA, +7.43% CEO Elon Musk said in a regulatory filing that he would lean on equity to finance his $44 billion Twitter deal, and not a margin loan backed by shares of his electric-car maker.
- Shares of Apple Inc. AAPL, +2.32% advanced 2.3%, after erasing losses from the premarket session, after a report said the iPhone maker plans to keep production of its flagship item flat this year due to industry challenges. Apple also said it would lift hourly pay for U.S. workers to $22 an hour, up 45% from 2018, to compete in a tight labor market and amid pushes by some employees to unionize.
- Nvidia Corp. NVDA, +5.16% shares rose 5.2%, more than recovering from early losses following the release of a softer outlook.
- Other tech companies shares slumped. Snowflake Inc. SNOW, -4.50% shares fell 4.5% after the software company gave a disappointing forecast and reported cautious consumer activity.
- Cloud computing company Nutanix Inc NTNX, -22.97% tumbled 23% after its poor fourth-quarter outlook.
How did other assets do?
- The yield on the 10-year Treasury note TMUBMUSD10Y, 2.759% rose 1 basis point to 2.756%. Yields and Treasury prices move opposite each other.
- The ICE Dollar Index DXY, -0.15%, which measures the greenback against major currencies, was down 0.3%.
- Oil futures CL00, +0.02% gained, with West Texas Intermediate crude for July delivery CLN22, +0.02% up 3.4% to settle at $114.09 a barrel. Gold GC00, -0.04% for June delivery closed up 0.1% at $1,847.60 an ounce.
- Bitcoin BTCUSD, -1.57% was off 0.8% to trade below $29,300.
- In European equities, the Stoxx Europe 600 SXXP, +0.78% closed up 0.8%, while London’s FTSE 100 UKX, +0.56% gained 0.6%.
- In Asia, the Shanghai Composite SHCOMP, +0.50% finished 0.5% higher, while Hong Kong’s Hang Seng Index HSI, -0.27% fell 0.2% and Japan’s Nikkei 225 index NIK, +0.85% dropped 0.2%.
—Barbara Kollmeyer contributed reporting