Wall Street closed sharply higher on Thursday, witnessing a corrective rally in a heavily oversold market. Market participants’ confidence was boosted after the Fed’s FOMC minutes and strong earnings results from some large retailers. The three main stock indexes finished in the green.

How did the benchmarks work?

The Dow Jones Industrial Average (DJI) rose 1.6% or 516.91 points to close at 32,637.19. In particular, 27 components of the 30-stock index ended in positive territory while 3 in negative territory. The blue-chip index posted a 5-day winning streak, the longest since March 23.

The tech-heavy Nasdaq Composite finished at 11,740.65, climbing 2.7% or 305.91 points on the strong performance of large-cap tech stocks.

Meanwhile, the S&P 500 advanced 2% to end at 4,057.84. Ten of the benchmark’s 11 major sectors closed in the positive zone while one ended in red. The SPDR for the Communication Services sector (XLC), the SPDR for the Consumer Discretionary sector (XLY), the SPDR for the Financials sector (XLF), the SPDR for the Industrials sector (XLI) and the SPDR for the technology sector (XLK) grew by 2.4%, 4.9%, 2.3% and 2% and 2.4%, respectively.

The fear gauge CBOE Volatility Index (VIX) fell 3.1% to 27.50. A total of 11.43 billion shares were traded on Thursday, below the 20-session average of 13.22 billion. Progressives outnumbered decliners on the NYSE with a 5.16-to-1 ratio. On the Nasdaq, a 2.95-to-1 ratio helped issues advance.

A relief rally

Wall Street has seen extreme volatility over the past two months on fears of runaway inflation, an ultra-hawkish Fed and a near-term recession. This week, US stock markets experienced a relief rally. Lows to date – the Dow Jones, S&P 500 and Nasdaq Composite – are up 4.4%, 4% and 3.4%, respectively.

Investor confidence was further boosted following the release of the Fed’s May FOMC minutes. The minutes also said that “a restrictive policy stance may well become appropriate depending on the evolution of the economic outlook and the risks to the outlook.”

Following the release of the minutes, market participants expect the central bank not to get too tough on its monetary stances, so the economy will be pushed into a recession.

Solid retail earnings

Market participants worried about slowing growth in the US economy after several retail giants revealed in their earnings report that rising inflation and labor shortages were eating away at their profits . Additionally, they warned that consumers are gradually shifting from buying discretionary items to necessary goods, especially groceries.

However, on May 26, three major retailers, namely Macy’s Inc. M, Dollar Tree Inc. DLTR and Dollar General Corp. DG reported strong results for the first quarter of fiscal 2022. All three retailers beat consensus estimates for revenue and net income and provided strong guidance.

As a result, shares of Macy’s, Dollar Tree and Dollar General rose 19.3%, 21.9% and 13.7% respectively. Macy’s currently carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Economic data

The Commerce Department said U.S. GDP contracted 1.5% in the first quarter of 2022, down from 1.4% previously reported. The consensus estimate was for a decline of 1.3%. Higher consumer spending was more than offset by weak investment by businesses and individuals. The growing trade deficit was another negative factor for GDP growth.

The Labor Department said weekly jobless claims fell by 8,000 to 210,000 for the week ended May 21. The consensus estimate was 218,000. The 4-week rolling average was 206,750, an increase of 7,250 from the previous week’s data of 199,500. Continuing claims (those who have already received government benefits ) rose to 1.346 million for the week ended May 14. Data for the previous week was revised down to 1.315 million, from 1.317 million reported earlier.

The National Association of Realtors said its pending home sales index fell 3.9% to 99.3 in April. The consensus estimate called for a 2% decline. The March data was revised down to a 1.6% decline from a 1.2% decline reported earlier. Year over year, the index fell 9.1%.

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