By Stephen Culp
NEW YORK (Reuters) - U.S. stocks closed higher on Thursday, winning back much of the previous day's losses, as economic data fueled optimism that the Federal Reserve would ease monetary policy and revived investor risk appetite.
All three major U.S. stock posted gains as chips surged, led by Micron Technology (NASDAQ:MU) after its better-than-expected quarterly forecast, putting the tech-heavy Nasdaq out front.
The rally gained momentum as the session drew to a close, with the S&P 500 and the Nasdaq surging more than 1%.
Data on Thursday showed third-quarter U.S. economic growth was not as robust as originally stated, and cracks are appearing in the tight labor market, which the Fed considers an obstacle to cooling inflation.
"The fact that the third-quarter GDP number wasn't revised upward, and in fact was cut, is giving investors comfort that the path the Fed is on, which they enunciated last week, isn't going to change any time soon," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
U.S. stocks abruptly sank late Wednesday afternoon, snapping a multi-session rally, in a sell-off possibly accelerated by hedging activity associated with short-dated option trades.
"The investor narrative yesterday was about profit taking on the heels of a very long consistent holiday rally," said Greg Bassuk, chief executive of AXS Investments in New York.
"Investors would be prudent to buy on these dips," Bassuk said, adding that he believes stocks "will end the year strongly."
Financial markets are pricing in a 71.3% likelihood that the U.S. central bank will reduce the Fed funds target rate by 25 basis points as soon as March, according to CME's FedWatch tool.
The market is awaiting the Commerce Department's personal consumption expenditures (PCE) report due on Friday, which will cover income growth, consumer spending and inflation.
The Dow Jones Industrial Average rose 322.35 points, or 0.87%, to 37,404.35, the S&P 500 gained 48.4 points, or 1.03%, at 4,746.75 and the Nasdaq Composite added 185.92 points, or 1.26%, at 14,963.87.
All 11 major sectors of the S&P 500 ended in positive territory, and consumer discretionary stocks enjoyed the biggest percentage gains.
Micron Technology forecast quarterly revenue above market estimates, and its shares jumped 8.6% on signs of a memory chip recovery in 2024 after one of the most significant downturns in years.
The Philadelphia SE semiconductor index, housing chip stocks, advanced 2.8%.
U.S. electric vehicle makers Tesla (NASDAQ:TSLA), Lucid Group and Rivian Automotive rose between 1.6% and 3.0% after a report said the United States was considering tariff hikes on Chinese EV manufacturers.
Triumph Group soared 32.9% after the aerospace supplier said it would sell its components aftermarket business to AAR Corp for $725 million.
U.S.-listed shares of Blackberry (TSX:BB) tumbled 12.7% after its fourth-quarter revenue estimates landed below expectations.
Advancing issues outnumbered decliners on the NYSE by a 3.65-to-1 ratio; on Nasdaq, a 2.79-to-1 ratio favored advancers.
The S&P 500 posted 17 new 52-week highs and one new low; the Nasdaq Composite recorded 79 new highs and 68 new lows.
Volume on U.S. exchanges was 10.88 billion shares, compared with the 12.28 billion average for the full session over the last 20 trading days.