Two new economic data releases cooled recession worries on Thursday as investors continued to debate how quickly the Federal Reserve should cut interest rates.
Retail sales rose 1% in July, according to new Census Bureau data, above Wall Street's expectations of 0.4%. Meanwhile, initial filings for unemployment insurance fell more than expected last week.
New data from the Department of Labor showed there were 227,000 initial jobless claims filed in the week ending Aug. 10, down from 234,000 the week prior and below the 235,000 economists had expected.
The two reports fight back against concerns of a looming significant slowdown in the US economy following a weaker-than-expected July jobs report that spawned the worst stock market sell-off of the year. Stocks rose on Thursday, with all three of the major averages rising about 1% as the S&P 500 (^GSPC) headed for its best weekly return in nine months.
"All of a sudden, things have come together," BMO Wealth Management US chief investment officer Yung-Yu Ma told Yahoo Finance. "And what seems like almost a Goldilocks scenario for the data is a tremendous shift from what we had a week or so ago when we had the market sell-off."
He added, "We think the soft landing is firmly in place."
Within the details of Thursday's retail sales report, economists had few qualms. July sales, excluding auto and gas, rose 0.4%, above consensus estimates for a 0.2% increase. The control group in Tuesday's release, which excludes several volatile categories and factors into the gross domestic product reading for the quarter, increased 0.3% in July, above estimates for a 0.1% increase.
Motor vehicle and parts dealers led the gains by category, rising 3.6%, while electronic and appliance store sales popped 1.6%.
"There was almost nothing in the July retail sales report for the perma-bears to latch on to, with the rebound in retail sales led by a recovery in vehicle sales, but encouragingly broad-based with control group sales rising even further," the team at Capital Economics wrote in a note.
The strong report on spending, combined with the data showing lower-than-expected unemployment claims, prompted investors to scale back their call for the Fed to begin easing policy aggressively.
Read more: Fed predictions for 2024: What experts say about the possibility of a rate cut
As of Thursday morning, markets were pricing in a roughly 75% chance the Federal Reserve cuts interest rates by 25 basis points. A week ago, the market had been favoring a 50 basis point cut from the Fed amid concerns of an imminent economic downturn.
"The Fed should start normalizing policy soon with modest, gradual cuts, but there is no sign that the economy is in need of significant accommodation," Jefferies US economist Tom Simons wrote in a note to clients on Thursday.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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