U.S. Stocks Show Substantial Turnaround After Seeing Early Weakness

With traders shrugging off lower guidance from software giant Microsoft (MSFT), stocks showed a substantial turnaround over the course of the trading session on Thursday. The major averages recovered from early weakness to end the day sharply higher.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 435.05 points or 1.3 percent to 33,248.28, the Nasdaq spiked 322.44 points or 2.7 percent to 12,316.90 and the S&P 500 surged 75.59 points or 1.8 percent to 4,176.82.

The rally on the day more than offset the pullback seen over the two previous sessions, with the major averages reaching their best closing levels in almost a month.

The strength that emerged on Wall Street may partly have reflected optimism that the Federal Reserve could alter its plans to aggressively raise interest rates in the light of some weak economic data.

Before the start of trading, payroll processor ADP released a report showing much weaker than expected private sector job growth in the month of May.

ADP said private sector employment climbed by 128,000 jobs in May after jumping by a downwardly revised 202,000 jobs in April.

Economists had expected private sector employment to surge by 300,000 jobs compared to the addition of 247,000 jobs originally reported for the previous month.

“Hopes for a less aggressive tightening campaign by the Fed improved after a wrath of economic data suggests the economy is softening and that inflation is cooling,” said Edward Moya, senior analyst with OANDA.

He added, “We might not see a significant deceleration with inflation prints, but expectations are growing that the Fed won’t maintain an aggressive inflation rate hiking campaign.”

However, Fed Vice Chair Lael Brainard told CNBC it’s “very hard to see the case for a pause” in rate hikes, noting the central bank still has “a lot of work to do to get inflation down to our 2% target.”

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to jump by 325,000 jobs in May after surging by 428,000 jobs in April, while the unemployment rate is expected to edge down to 3.5 percent from 3.6 percent.

Sector News

Gold stocks showed a substantial move to the upside on the day, resulting in a 4.9 percent spike by the NYSE Arca Gold Bugs Index

The rally by gold stocks came amid a notable increase by the price of the precious metal, with gold for August delivery jumping $22.70 or 1.2 percent to $1,871.40 an ounce.

Significant strength also emerged among semiconductor stocks, as reflected by the 3.6 percent surge by the Philadelphia Semiconductor Index. The index ended the session at its best closing level in almost a month.

Retail stocks also moved sharply higher over the course of the session, driving the Dow Jones U.S. Retail Index up by 3 percent to a nearly one-month closing high.

Chemical, networking, computer hardware and brokerage stocks also showed strong moves to the upside, reflecting the broad based buying interest that emerged on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Thursday. Japan’s Nikkei 225 Index edged down by 0.2 percent, while China’s Shanghai Composite Index rose by 0.4 percent.

Meanwhile, European stocks moved mostly higher, with the markets in London closed for the queen’s Platinum Jubilee. While the French CAC 40 Index jumped by 1.3 percent, the German DAX Index shot up by 1 percent.

In the bond market, treasuries showed a lack of direction over the course of session before closing modestly higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by less than a basis points at 2.922 percent.

Looking Ahead

The monthly jobs data is likely to be in the spotlight on Friday, although traders are also likely to keep an eye on a report on service sector activity.

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