The three major US stock indexes were higher on Thursday as solid earnings and a soft economic report suggested that the Federal Reserve's rate hike plans would not be extended beyond their current stage. Every week, the S&P 500, Dow, and Nasdaq are on track to end their longest losing streak in over two decades.
After the first-quarter earnings season came in better than expected, investors were encouraged by the Fed's dovish tone and willingness to pause its rate-hike campaign later. Sam Stovall, chief investment officer at CFRA Research, said that the market was starting to feel optimistic.
"With first quarter earnings essentially over and coming in better than expected, combined with the Fed indicating that they are going to be front-end loading its rate-tightening policy and implying it may pause later in the fall, all of that has given investors reason to feel optimistic," said Stovall.
Peter Cardillo, the chief market analyst at Spartan Capital Securities, said that the strong earnings and the soft economic report suggested that the market was starting to break its weekly losing streak. Cardillo noted that the outlook from retailers had also been positive, which had offset some of the dour warnings from their peers.
"We're having a good rally," said Cardillo. "What happens today probably sets the stage for the indexes snapping a streak of weekly negativity."
People are spending money
Department store operator, Macy's Inc, rose 19.1% after it raised its annual profit forecast. Other retailers, such as Dollar General and Dollar Tree, also reported better-than-expected sales. Both of these companies' sales forecasts suggested that consumers were reining in their spending amid high inflation.
The minutes from the Federal Open Market Committee's (FOMC) most recent meeting released on Wednesday calmed concerns that the central bank would become more aggressive in raising interest rates. Despite this, Cardillo said that the market still expected the Fed to continue raising rates gradually.
"The market agrees that we're seeing an aggressive Fed, but not an ultra-aggressive Fed at this time," Cardillo said.
Although structural inflation has peaked, it is not likely that it will be transitory. If the Fed starts to turn dovish in the fall, it could cause the market to anticipate a slower pace of rate increases.
Data suggests economic struggles despite consumer-goods rally
Data released on Thursday, including the employment report, pending home sales, and GDP, showed that the economy is still struggling. This suggested that the Fed might change its stance on interest rates later this year.
The consumer discretionary sector was the biggest gainer in the S&P 500, rising 5.1%. Twitter Inc also rose after it filed a lawsuit against Elon Musk, claiming that he delayed providing information about his ownership of the company.
American-traded shares of Alibaba Group rose 14.9% after it reported better-than-expected earnings. Despite its impressive performance, Alibaba noted that it would not provide forward guidance due to the restrictions in China.
The S&P 500 had its third new high of the week and 29 new lows. The tech-heavy Nasdaq also recorded its 28th new high and 116 new lows. There were over 13 billion shares traded on US exchanges in the last 20 days.