Wall Street's major indexes reversed course to gain in early afternoon trading on Thursday, as a contraction in the U.S. economy for the second straight quarter raised expectations of a less aggressive monetary policy by the Federal Reserve.

Gross domestic product fell at a 0.9% annualized rate in the last quarter, the Commerce Department said in its advance GDP estimate. A Reuters survey had showed that the growth likely rebounded at a 0.5% annualized rate.

"The Fed will likely interpret this decline in real growth as confirmation to slow down the pace of rate hikes at the upcoming meetings," Jeffrey Roach, chief economist for LPL Financial said.

"Front-loading rate hikes eventually mean smaller hikes in the near future."

Two consecutive quarters of declines in growth are traditionally considered a recession, but the private research group which is the official arbiter of U.S. recessions looks at a broad range of indicators including jobs and spending.

Market participants believe that even if the U.S. economy entered a recession, its effects would be mild.

"While it is certainly on the negative side of the estimates, a 1% decrease is relatively small and supports the idea that any recessionary environment will be mild," said Mike Loewengart, managing director at E*TRADE from Morgan Stanley.

Markets have been rattled by worries of runaway inflation and aggressive interest rate hikes hurting economic growth, but comments by Fed Chairman Jerome Powell on Wednesday that he doesn't believe the U.S. is in a recession on account of a stable labor market offered some relief.

Wall Street also carried gains from the previous session when the U.S. central bank raised interest rates as expected and Powell eased some worries about the pace of rate hikes.

At 12:40 p.m. ET, the Dow Jones Industrial Average was up 222.25 points, or 0.69%, at 32,419.84, the S&P 500 was up 28.38 points, or 0.71%, at 4,051.99 and the Nasdaq Composite was up 56.89 points, or 0.47%, at 12,089.31.

Among individual stocks, Meta Platforms Inc fell 5.8% after posting its first-ever quarterly drop in revenue.

Qualcomm Inc fell 4.6% after warning of difficult economic conditions and a slowdown in smartphone demand could hit its mainstay handset chips business.

Shares of Apple Inc were trading flat, while Amazon.com Inc gained 0.3% ahead of their quarterly reports after market close.

Rising interest rates have hammered shares of mega-cap companies whose valuations depend on future cash flow as it gets heavily discounted.

Defensive sectors, including S&P 500 utilities and real estate gained nearly 3% each, indicating a largely risk-off day of trading.

Ford Motor Co gaining 5.5% after reporting a better-than-expected quarterly net income.

Advancing issues outnumbered decliners by a 2.50-to-1 ratio on the NYSE and by a 1.32-to-1 ratio on the Nasdaq. The S&P index recorded three new 52-week highs and 31 new lows, while the Nasdaq recorded 49 new highs and 83 new lows.