Stocks staged a broad rally on Thursday, bouncing back after three straight days of declines. The major indexes closed sharply higher, led by gains in tech and consumer discretionary shares.
The S&P 500 jumped 1.8% to 3,963, just 0.4% shy of its record closing high. The Nasdaq powered 2.6% higher, while the Dow Jones Industrial Average rose over 300 points.
Micron Earnings Provide Spark
A standout earnings report from Micron Technology helped spur the rebound. The memory chip maker delivered adjusted fiscal first-quarter earnings per share of $1.45 on revenue of $4.09 billion, beating expectations.
The company also provided an upbeat forecast, projecting its fiscal second-quarter revenue to come in above Wall Street’s view. Micron’s shares soared nearly 10%, providing a boost to the broader tech sector.
“Micron’s very positive earnings is a good harbinger for tech,” said Ryan Detrick, chief market strategist at Carson Group. “We do think a lot of the negativity is priced in and markets are poised for a rebound.”
Other chip stocks like Nvidia and Advanced Micro Devices also posted strong gains on the back of Micron’s report. The Philadelphia Semiconductor Index jumped 4.5%.
Bargain Hunters Drive Broad-Based Rally
All 11 major S&P 500 sectors closed firmly higher, underscoring strong demand for stocks across the board following this week’s pullback. Cyclical groups that were hit hard in the recent selling saw some of the strongest gains.
“There is bargain hunting today,” said Quincy Krosby, chief global strategist at LPL Financial. “The market has pulled back, and buyers were waiting to step in.”
Energy and financials were among the best performing sectors, climbing 3.4% and 2.6% respectively. Cruise operators and airlines also rebounded sharply after steep declines, driving a 3.8% pop in the consumer discretionary sector.
Meanwhile, countercyclical groups like utilities and consumer staples lagged but still closed higher on the day.
Volatility Expected To Continue
Choppy trading is likely to persist in the remaining sessions of the year as investors continue to debate the economic outlook. Recent data reports have painted a mixed picture, fueling uncertainty over the Fed’s policy path in 2023.
“It’s been a seesaw kind of market, but we may have put in at least a near-term bottom after the last few days of declines,” Detrick said. “Volatility usually picks up this time of year with lower liquidity. We wouldn’t be surprised to see continued back and forth in the next week.”
The CBOE Volatility Index, or VIX, ticked 3.6% lower but remains elevated above 20, signaling fears of further turbulence ahead.
Still, Detrick believes the longer-term backdrop for equities remains constructive despite mounting recession worries.
“Earnings forecasts have come down a lot already, and we think stocks have largely discounted a mild economic pullback,” he said. “Bargain hunting like we’re seeing today shows there’s still plenty of cash on the sidelines ready to buy the dip.”
GDP Growth Slows Less Than Expected
Investors also embraced a revised reading on third-quarter GDP showing the U.S. economy expanded at a 3.2% annualized pace during the quarter. The upgrade from the previous 2.9% growth estimate helped temper recent slowdown fears.
“The GDP revision confirms the resilience of the U.S. economy and supports the soft landing narrative,” said carrying Francesco Pesole, FX strategist at ING.
Still, analysts caution slowing global growth and high interest rates pose ongoing headwinds in 2023. Morgan Stanley economists see a “credible path” to a U.S. recession this year as the full impact of the Fed’s aggressive tightening hits the economy with a lag.
Outlook Hinges On Inflation And Fed Policy
The key variable remains the trajectory of inflation and the Fed’s response. While price pressures have shown signs of easing, core inflation remains well above the central bank’s 2% target.
“Inflation is heading in the right direction but still too high for the Fed to declare victory,” said Seema Shah, chief global strategist at Principal Asset Management. “Until clear evidence arrives that inflation is on a sustained downward path, markets should brace for ongoing volatility.”
Fed officials have signaled they expect to keep rates elevated for some time to ensure inflation is defeated. Markets are currently pricing in rate cuts late this year, counting on an economic slowdown to tame price pressures.
“The Fed wants clear confirmation that inflation is moving back toward target before they take the foot off the brakes, while markets seem confident that inflation data will quickly improve to allow cuts before year-end,” said Pesole.
Final Trading Days Of 2023 Loom
U.S. markets will be closed on Monday for the New Year’s Day holiday. That leaves just three trading sessions left to wrap up what has been a turbulent year for investors.
Major benchmarks remain sharply lower for 2022 despite this week’s rebound. Lingering uncertainties, from geopolitical tensions to central bank policy, continue to weigh on sentiment.
Still, stocks have managed to pare a portion of their losses since hitting a bottom in mid-October. The S&P 500 has rebounded over 17% from its year-to-date low as investors hunt for bargains while bracing for further gyrations.
“It remains difficult to see a catalyst that could drive stocks materially above current levels,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “In this environment, we advise investors to remain selective and ensure adequate portfolio diversification.”
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