Wall Street is rallying closer to its records on following signals the US economy is holding up better than expected, with particular credit going to the country’s shoppers. The S&P 500 was up 1.6 per cent in afternoon trading and on track for a sixth-straight gain as the US stock market rights itself following a scary few weeks.
It’s back to within 2.3 per cent of its all-time high set last month after earlier falling nearly 10 per cent below it. Wall Street is surging back towards record highs.
Credit: Bloomberg The Dow Jones was up 506 points, or 1.3 per cent, in mid-afternoon trade and the Nasdaq composite was 2.3 per cent higher as Big Tech stocks recover more of their stumbles from the last month.
The Australian sharemarket is set to bounce higher, with futures at 4.50am AEST pointing to a gain of 89 points, or 1.1 per cent, at the open.
The ASX added 0.2 per cent on Thursday. Treasury yields leaped in the bond market following the encouraging economic data.
One report said US shoppers increased their spending at retailers last month by much more than economists expected, while another said fewer US workers applied for unemployment benefits. A year ago, such reports could have sent the stock market reeling on worries they would push inflation higher. But good news on the economy is once again good news on Wall Street, particularly after a report showed US employers pulled back on their hiring last month by much more than expected.
That dud of a jobs report raised worries the US economy could buckle under the weight of high interest rates brought by the Federal Reserve, and it contributed to turmoil in stock markets worldwide. But Thursday’s reports hint a perfect landing may still be possible, one where the Fed slows the economy’s growth by just enough through high rates to stifle inflation but not so much that it causes a recession. Loading “The growth scare isn’t over, but it’s a little less scary,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Walmart added to the optimism after it delivered a bigger profit for the spring than analysts expected, and its shares climbed 6.8 per cent The retail giant also raised its forecast for sales for the full year, indicating US shoppers can keep spending. Such spending by US consumers makes up the bulk of the economy.
Other big companies likewise joined the long parade of businesses that have topped analysts’ expectations for springtime profit. Deere & Co. rode 7.
5 per cent higher after the seller of backhoes, dozers and other equipment reported stronger profit and revenue than expected. That was despite what it called challenging conditions across the agricultural and construction sectors globally. Cisco System’s profit and revenue for the latest quarter squeaked past analysts’ forecasts, and its stock jumped 6.
6 per cent after the maker of networking equipment also said it would cut costs by eliminating thousands of jobs as it shifts to faster-growing areas of technology. Ulta Beauty’s stock rose 12.1 per cent to help lead the market after Warren Buffett’s Berkshire Hathaway revealed it has built an ownership stake in the retailer.
In the bond market, the 10-year Treasury yield clambered up to 3.93 per cent from 3.84 per cent following the strong economic data.
The two-year Treasury yield, which more closely follows expectations for action by the Federal Reserve, jumped to 4.11 per cent from 3.96 per cent.
Traders still widely expect the Federal Reserve to cut its main interest rate at its next meeting in September, which would be the first such cut since the 2020 COVID crash. But they’re now largely expecting the Fed to lower rates by the traditional quarter of a percentage point, according to data from CME Group. A week ago, many traders were forecasting a more severe cut of half of a percentage point because of worries that the US economy’s growth was sliding too fast.
Loading The Fed has been clear about the tightrope it began walking when it started hiking rates sharply in March 2022: Being too aggressive would choke the economy, but going too soft would give inflation more oxygen and hurt everyone. The Fed ultimately raised its main interest rate from virtually zero to a two-decade high, where it’s sat for more than a year. Inflation has slowed sharply from its peak above 9 per cent two summers ago, and an easing of rates would remove pressure on the economy and on prices for investments.
Signals of a stronger US economy helped drive smaller stocks in particular on Thursday. Smaller companies can be more beholden to the strength of the US economy than huge multinationals, and the Russell 2000 index of smaller stocks rose 2.8 per cent to help lead the market.
Smaller stocks have been even jumpier than the rest of the market recently, rising more than the S&P 500 when signals indicate the US economy is doing well and interest rates are about to come down, but tumbling more sharply when pessimism rises. In stock markets abroad, indexes also rose in much of Asia and Europe. Japan’s Nikkei 225 rose 0.
8 per cent after data showed its economy returned to growth during the spring. The U.K.
economy also grew during the latest quarter, a welcome signal following a rough run, and the FTSE 100 rose 0.8 per cent in London. AP The Market Recap newsletter is a wrap of the day’s trading.
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