The S&P 500 edged up and the Nasdaq reached another record closing high on Thursday after the European Central Bank said it would avoid raising interest rates until mid-2019, and data showed strength in the U.S. economy.
The strong retail sales numbers came a day after the Fed increased its key interest rate and hinted at the possibility of two more hikes by the end of 2018.
The ECB announced it would end its bond-purchase program at year-end but signaled that any interest rate hike was still distant.
The Fed’s rate hike on Wednesday was accompanied by an upbeat economic assessment. This was followed by Thursday’s better-than-expected retail sales data and unemployment rolls falling to a near 44-1/2 year low, underscoring the central bank’s optimism.
Of the 11 major sectors of the S&P 500, seven ended the session in positive territory and one was unchanged on the day.
The rate-sensitive financial sector was the biggest percentage loser of the S&P 500, led by a 1.8 percent decline in JP Morgan Chase shares, as Treasury yields fell on news that the ECB would be holding rates steady for longer than many investors expected.
JP Morgan Chase was also the worst drag on the Dow.
Utilities, consumer discretionary and telecommunications showed the largest sector gains.
Microsoft closed out the trading day up 0.6 percent on news that it was working on technology to automate retail purchases in a challenge to Amazon.com.
Twenty-First Century Fox was up 2.1 percent after Comcast offered $65 billion to try and out-bid Walt Disney’s merger offer by 20 percent.
Shares of Royal Caribbean rose 5.1 percent after the company bought a 66.7 percent stake in privately-held Silversea Cruises for about $1 billion.
Approximately 6.75 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.70 billion share average over the past 20 trading days.
Day’s Economic News
Retail sales increased more than expected in May as consumers bought motor vehicles and a range of other goods even as they paid more for gasoline, the latest indication of an acceleration in economic growth in the second quarter.
Other data on Thursday indicated a further tightening in labor market conditions, with first-time applications for unemployment benefits falling unexpectedly last week, while the jobless rolls declining to a near 44-1/2-year low.
The reports came a day after the Federal Reserve raised interest rates for a second time this year and offered an upbeat assessment of the economy. The Fed described economic activity as “rising at a solid rate” and the labor market as continuing to “strengthen.” The Fed forecast two more rate hikes in the second half of 2018.
According to Thursday’s report by the Commerce Department, retail sales rose 0.8 percent last month, the largest advance since November 2017. Data for April was revised up to show sales rising 0.4 percent instead of the previously reported 0.2 percent gain. Retail sales in May increased 5.9 percent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.5 percent last month after an upwardly revised 0.6 percent increase in April. These core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have risen 0.5 percent in April.
The strong retail sales report added to data ranging from the labor market to manufacturing and trade in suggesting the economy was regaining momentum in the second quarter after growth slowed at the start of the year amid a sharp step-down in consumer spending.
Growth estimates for the April-June quarter are as high as a 4.6 percent annualized rate. The economy grew at a 2.2 percent rate in the first quarter.
Retail sales are being underpinned by a robust labor market, which is gradually boosting wage growth.
In a separate report on Thursday, the Labor Department indicated that initial claims for state unemployment benefits fell by 4,000 claims to a seasonally adjusted 218,000 claims for the week ended June 9.
The number of claims after an initial week of aid declined by 49,000 claims to 1.70 million claims for the week ended June 2, the lowest level since December 1973.
The labor market is close to or at full employment, with the jobless rate at an 18-year low of 3.8 percent. The unemployment rate has dropped by three-tenths of a percentage point this year. It is near the Fed’s forecast of 3.6 percent by the end of this year.
Layoffs have remained very low amid signs of growing worker shortages across all sectors of the economy. There were 6.7 million job openings in April, a new record for that statistic.
The number of unemployed people per vacancy slipped to 0.9 from 1.0 in March, indicating that most people looking for a job are likely to find one.
Retail sales in May were boosted by a 0.5 percent rise in receipts at auto dealerships. Auto sales rose 0.2 percent in April. Sales at service stations surged 2.0 percent last month, reflecting higher gasoline prices.
Prices at the pump have risen by 15.5 percent this year, according to U.S. Energy Information Administration data. Expensive gasoline, if sustained, could pull spending away from other categories.
Sales at building material stores rebounded 2.4 percent last month after declining 0.8 percent in April. Receipts at clothing stores surged 1.3 percent, the largest gain since March 2017.
Sales at restaurants and bars jumped 1.3 percent, the largest increase since January 2017. There were also increases in online retail sales, but receipts at furniture stores fell 2.4 percent, the largest decline since December 2013.
Meanwhile, sales at sporting goods, hobby and musical instrument and book stores fell 1.1 percent after slipping 0.2 percent in April.