Stocks finished higher Thursday, extending a modest three-day winning streak for the S&P 500, as investors move past a hawkish Fed minutes to focus on jobs data that could provide significant clues as to the true health of the domestic economy.
Minutes from the Federal Reserve's June policy meeting, where it lifted rates by 75 basis points and signaled more to come, indicated that Chairman Jerome Powell and his colleagues were more concerned with entrenched inflation than the impact of higher interest rates on broader economic growth.
"Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist," the minutes read.
That stand could be crucial as the economy threatens to slip into recession and rate traders bet on the near-certainty of another 75 basis point hike later this month.
The June non-farm payroll report Friday, could either cement the Fed's case or trigger a re-think as data suggests the economy contracted for a second straight quarter over the three months ending in June and continues to weaken at a 2.1% clip.
Bond market pricing is also flashing its own recession warning, with 2-year Treasury note yields trading at 3.03% -- a more than 10 basis point jump from yesterday -- to reflect the Fed's hawkish stance on rates.
That leaves the yield curve between 2-year and 10-years notes inverted by around 6.6 basis points, a further clue that markets are expecting a prolonged period of weakness in the world's biggest economy.
That might explain why markets are noting a key paragraph in the minutes, which points to the potential for a pause in rate hikes later this year should growth metrics quickly deteriorate.
“Participants noted that, with the federal funds rate expected to be near or above estimates of its longer-run level later this year, the Committee would then be well positioned to determine the appropriate pace of further policy firming and the extent to which economic developments warranted policy adjustments,” the minutes noted.
"This is new, and extremely important," said Cliff Hodge, CIO for Cornerstone Wealth in Charlotte, North Carolina. "They were already thinking about where the appropriate level is to stop tightening policy in June, before the spate of economic data really deteriorated."
Against that backdrop, stocks are nudging higher around the world, with markets in Asia boosted by reports of fresh China stimulus and tech getting some support from the strongest quarterly earnings from chipmaker Samsung in at least four years.
Samsung said profits for its June quarter rose 11% last year to $10.7 billion, with revenues rising 21% to $58.58 billion. Chip sales are likely to have driven the bulk of Samsung's profits, although memory and data center prices are starting to wane in the face of over-stocked customers and cooling demand.
U.S. chipmakers were on the rise as a result, with Intel (INTC) moving 3.1% higher at $38.14 each and Nvidia (NVDA) up 4.81% at $157.58 each. Qualcomm (QCOM) was marked 5.78% higher at $134.40 each.
Europe's Stoxx 600 was marked 1.45% higher in mid-day Frankfurt trading, following on from a 1.03% gain for the Asia-region MSCI ex-Japan index and a 1.18% bump for the Nikkei 225 in Tokyo.
Meanwhile, the average rate on a 30-year fixed-rate mortgage fell to 5.30%, mortgage-finance giant, according to Freddie Mac, down from 5.70% last week but higher than 3.22% at the beginning of the year.
On Wall Street, the S&P 500 finished up 1.50%, while the Dow Jones Industrial Average advanced 346 points, or 1.12%, to 31,384 and the tech-focused Nasdaq surged 2.28%.
In terms of individual stocks, Seagen (SGEN) shares jumped 1.6% following a report from the Wall Street Journal that it's in advanced takeover talks with drugmaker Merck & Co. (MRK) that could value the cancer specialist at around $40 billion.
GameStop (GME) shares, meanwhile, surged 14.9% after the money-losing video game retailer unveiled plans for a four-for-one stock split.
