NEW YORK: US stocks closed higher on Thursday (Dec 21), winning back much of the previous day’s losses, as economic data fuelled optimism that the Federal Reserve (Fed) would ease monetary policy and revived investor risk appetite.

All three major US stock indices posted gains as chips surged, led by Micron Technology 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%.

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.

Data on Thursday showed third-quarter US economic growth was not as robust as originally stated, and cracks are appearing in the tight labour 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.

US 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,” he said, adding that he believes stocks “will end the year strongly”.

Financial markets are pricing in a 71.3% likelihood that the US 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.

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. – Reuters