Wall Street roars closer to its records as US shoppers help drive the economy

NEW YORK (AP) — Wall Street is rallying closer to its records on Thursday following signals the U.S. economy is holding up better than expected, with particular credit going to the country’s shoppers.

The S&P 500 was up 1.3% in midday trading and on track for a sixth straight gain as the U.S. stock market rights itself following a scary few weeks. It’s back to within 2.5% of its all-time high set last month after earlier falling nearly 10% below it.

The Dow Jones Industrial Average was up 444 points, or 1.1%, as of 11:30 a.m. Eastern time, and the Nasdaq composite was 1.9% higher as Big Tech stocks recover more of their stumbles from the last month.

Treasury yields leaped in the bond market following the encouraging economic data. One report said U.S. shoppers increased their spending at retailers last month by much more than economists expected, while another said fewer U.S. 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 U.S. employers pulled back on their hiring last month by much more than expected.

That dud of a jobs report raised worries the U.S. 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.

“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 6.4% The retail giant also raised its forecast for sales for the full year, indicating U.S. shoppers can keep spending. Such spending by U.S. consumers makes up the bulk of the economy.

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Other big companies likewise joined the long parade of businesses that have topped analysts’ expectations for springtime profit.

Deere & Co. rode 6.6% 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 7.4% 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 11.4% 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% from 3.84% following the strong economic data.

The two-year Treasury yield, which more closely follows expectations for action by the Federal Reserve, jumped to 4.09% from 3.96%.

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 more severe cut of half of a percentage point because of worries that the U.S. economy’s growth was sliding too fast.

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% two summers ago, and an easing of rates would remove pressure on the economy and on prices for investments.

Signals of a stronger U.S. economy helped drive smaller stocks in particular on Thursday. Smaller companies can be more beholden to the strength of the U.S. economy than huge multinationals, and the Russell 2000 index of smaller stocks rose 2.5% 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 U.S. 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% 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% in London.

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AP Business Writer Yuri Kageyama contributed.

Stan Choe, The Associated Press