Wall Street Advances As Traders' Aggressive Rate-hike Fears Ease

Wall Street benchmarks rose on Thursday, as investors reacted positively to the previous day's commentary from the U.S. Federal Reserve which hinted the central bank's aggressive pace of interest rate hikes could be tempered if growth suffered.

U.S. stock markets have stabilized in July after a brutal selloff in the first half against the backdrop of a surge in inflation, the Ukraine conflict and the Fed's pivot away from easy-money policy.

The benchmark S&P 500 index has risen 3% so far this month, after recording its steepest first-half percentage drop since 1970.

Minutes from the central bank's June policy meeting, where the Fed raised interest rates by three-quarters of a percentage point, showed on Wednesday a firm restatement of its intent to get prices under control.

However, Fed officials acknowledged the risk of rate increases having a "larger-than-anticipated" impact on economic growth and judged that an increase of 50 or 75 basis points would likely be appropriate at the policy meeting in July.

"The (rate hike) expectations for the July meeting haven't changed much, but the expectation later in the year is coming down a little bit," said Michelle Cluver, portfolio strategist at Global X ETFs.

Though investors widely expect the Fed to hike rates by another 75 basis points in July, expectations of peak terminal rate next year have come down significantly amid growing worries of a global economic slowdown.

Fed funds futures traders are pricing for the benchmark rate to peak at 3.44% in March. Expectations before the June meeting were that it would increase to around 4% by May. It is currently 1.58%..

Goldman Sachs forecast a 75 basis-point rate hike this month, a 50 basis-point hike in September, and 25 basis-point hikes in November and December.

A report on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly rose last week and demand for labor is slowing with layoffs surging to a 16-month high in June.

A closely watched employment report on Friday is expected to show nonfarm payrolls likely increased by 268,000 jobs last month after rising by 390,000 in May.

By 2:01 p.m. EDT, the Dow Jones Industrial Average rose 277.09 points, or 0.89%, to 31,314.77, the S&P 500 gained 52.21 points, or 1.36%, to 3,897.29 and the Nasdaq Composite added 250.70 points, or 2.21%, to 11,612.55.

There were gains for high-growth stocks, which had suffered in the first half of 2022 as investors fretted over their prospects in a rising interest rate environment: Tesla Inc rose 5.5% and Google parent Alphabet Inc was up 3.4%.

GameStop Corp rose 12.8% as the videogame retailer's board approved a four-for-one stock split. Another prominent meme stock, AMC Entertainment, jumped 14.4%.

Intel Corp, Nvidia Corp and Qualcomm Inc gained after South Korea's Samsung Electronics turned in its best second-quarter profit since 2018, driven by strong sales of memory chips.

The wider Philadelphia SE Semiconductor index climbed 4.6%.

Almost all of the S&P subsectors were higher, with the energy index's 3.6% gain making it the best performer as oil and gas companies followed the rebound in crude prices from the previous day's 12-week low.