Stocks climbed and bonds tumbled as data on retail spending and the labor market underscored the strength of the world's largest economy, allaying fears the Federal Reserve would be risking a deeper slowdown.
As economic jitters abated, equities extended a rebound from last week's meltdown into a sixth straight session. The S&P 500 rose about 1.5%. Walmart Inc. — a barometer of growth — jumped on a solid outlook.
Treasury yields surged, with the move led by shorter maturities. Data showed retail sales beat estimates while jobless claims hit the lowest since early July. Swap traders further reduced bets on aggressive Fed easing.
"We're back to an environment where good news is good news and bad news is bad news," said Bret Kenwell at eToro. "Investors and consumers want inflation to go lower — but not at the expense of the economy. Today's stronger-than-expected retail sales figure quiets some of the fears the U.S. may be slipping into a recession."
Given the recent worries about the labor market, the unemployment claims report was another positive. A weak U.S. payrolls print earlier this month spurred concern the Fed has waited too long to cut rates. Thursday's data should buy officials some time until the September meeting, Kenwell added.
"What hard landing?" said Aditya Bhave at Bank of America Corp. "The July retail sales data were consistent with our soft-landing economic outlook. We remain comfortable with our view that the Fed will cut rates only twice this year, by 25 basis points each, in September and December."
U.S. officials have been trying to use higher rates to ease inflation without causing the economy to contract — a scenario known as a "soft landing."
Fed Bank of St. Louis President Alberto Musalem said the time is approaching when it will be appropriate to cut rates. His Atlanta counterpart Raphael Bostic told the Financial Times he's "open" to a reduction in September.
The S&P 500 topped 5,500. The Nasdaq 100 added 2.4%. Cisco Systems Inc. jumped on a bullish forecast. The Russell 2000 of smaller firms climbed 2.8%.
Wall Street's "fear gauge" — the VIX — dropped below 16. That's after hitting 65 last week.
Treasury 10-year yields rose nine basis points to 3.93%. Traders trimmed bets on a jumbo September Fed cut, pricing in less than 30 basis points of easing. They now see 92 basis points of cuts for 2024. The dollar advanced.
The retail sales numbers were a blowout versus consensus, but more importantly it should lay to rest (at least for the moment) all of the "doom and gloom" that was expressed at the beginning of this month, according to Chris Zaccarelli Independent Advisor Alliance.
"This entire economic cycle has been a headscratcher from much higher-than-expected inflation to a much more resilient consumer than anyone could have forecast back in the dark days of 2020," he noted.
If the economy continues to be resilient — especially in conjunction with slowing inflation — then the Fed can begin a rate-cutting cycle without the economy entering recession and history shows this is an extremely positive environment for the stock market, he concluded.
To David Russell at TradeStation, investors fearing a potential recession or sharper slowdown have less to worry about.
"A soft landing is no longer a hope. It's becoming a reality," Russell said. "These numbers also suggest that recent market volatility wasn't really a growth scare. It was just normal summer seasonality amplified by moves in the currency market."
The market fallout from the "weak" early August U.S. data was "disproportionate" and largely reflected the unwind of crowded positions in some markets, according to Jonas Goltermann at Capital Economics.
Source: Ned Davis Research 
