Dow Jones: S&P 500 and Nasdaq Hit Six-Day Winning Streak

Dow Jones– On Thursday, stocks soared as investors grew more optimistic about the economy, buoyed by positive consumer and labor data that alleviated recession concerns. The Dow Jones Industrial Average surged by 554 points, or 1.39%, closing at 40,563.06. Meanwhile, the S&P 500 climbed 1.61% to finish at 5,543.22, marking its sixth consecutive gain. This index has rebounded by approximately 8% from its intraday low on August 5. The Nasdaq Composite also saw a notable increase, jumping 2.34% to reach 17,594.50.

Retail Sales and Jobless Claims Exceed Expectations

July’s retail sales exceeded expectations with a 1% increase, significantly surpassing Dow Jones’ forecast of a 0.3% rise. Additionally, weekly jobless claims showed a decline, further fueling investor optimism. This positive data provided a boost to a broader market that is striving to recover from a challenging August, which had been marred by worries about an economic slowdown following a disappointing jobs report on August 2.

S&P 500 Approaches Record Levels

Following a more than 3% gain this week, the S&P 500 is now about 2% shy of its record high. All three major U.S. indexes are trading above their August 2 closing levels, which was just before a global stock market sell-off on August 5. This sell-off was largely attributed to investor fears about an economic slowdown and the unwinding of a popular hedge fund currency trade.

Stephanie Roth, Chief Economist at Wolfe Research, highlighted that the day’s strong retail sales and jobless claims data reaffirm that the U.S. economy is not facing an imminent recession. Roth noted, Today’s solid retail sales and claims data is a reminder that the sky is not falling on the U.S. economy. Yes, economic momentum has cooled, but we don’t appear to be headed for recession imminently.

Rebound Driven by Inflation Data and Corporate Earnings

The encouraging inflation data from earlier in the week had already helped dissipate recession fears before Thursday’s economic releases. This data led to a rebound in equities, recovering from last week’s sharp global sell-off. Specifically, the consumer price index revealed a slowing annual inflation rate of 2.9%, the lowest level since 2021. This, coupled with a key wholesale inflation measure released on Tuesday that rose less than expected, reassured investors that an economic soft landing is achievable and that the Federal Reserve might lower interest rates in its September meeting.

Adding to the positive momentum, Walmart, a key Dow component, reported strong earnings and raised its outlook, resulting in a 7% rise in its shares. Cisco Systems also saw a 7% jump after announcing a fiscal fourth-quarter earnings and revenue beat along with reductions to its global workforce.

Market Outlook and Federal Reserve Expectations

The recent uptick in inflation data and positive corporate earnings reports have significantly enhanced the market outlook, fostering a renewed sense of optimism among investors. This encouraging trend has provided a boost to investor confidence, supporting the belief that the economy might achieve a soft landing rather than heading into a deeper recession.

As a result of these favorable developments, investors are increasingly hopeful that the Federal Reserve will consider lowering interest rates in its upcoming September meeting. This expectation is rooted in the recent data, which has alleviated some of the concerns that have been weighing on the market. With inflation showing signs of moderation and corporate earnings surpassing expectations, the pressure on the Fed to maintain high interest rates has lessened.

The stock market’s recovery is now gaining significant momentum. Major indices, which had experienced declines in recent months, are beginning to bounce back from their lows. The S&P 500, for instance, has made notable strides in recovering from its recent trough, moving closer to its previous all-time highs. This recovery reflects a broader positive sentiment across the market, driven by the combination of solid economic indicators and stronger-than-expected corporate performance.