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U.S. Stocks Close Firmly Positive On Upbeat Retail Earnings

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After showing an early move to the upside, stocks remained firmly positive throughout the trading session on Wednesday. With the upward move on the day, the major averages more than offset the pullback seen in the previous session.

The major averages pulled back off their highs of the session but held on to strong gains. The Dow jumped 240.29 points or 0.9 percent to 26,202.73, the Nasdaq advanced 71.65 points or 0.9 percent to 8,020.21 and the S&P 500 climbed 23.92 points or 0.8 percent to 2,924.43.

The initial strength on Wall Street reflected a positive reaction to upbeat earnings news from retail giants Target (TGT) and Lowe's (LOW).

Shares of Target spiked by 20.4 percent after the retailer reported better than expected second quarter results and raised its full-year earnings guidance.

Home improvement retailer Lowe's also surged up by 10.3 percent after reporting second quarter results that exceeded analyst estimates on both the top and bottom lines.

The better than expected results from the retailers added to optimism that strength in consumer spending will continue to support the U.S. economy despite early indicators of a looming recession.

Stocks remained mostly positive following the release of the minutes of the Federal Reserve's latest monetary policy meeting, which showed the central bank intends to remain flexible regarding future changes to interest rates.

Citing a lack of clarity about when the risks to the U.S. economy will be resolved, the Fed said the members plan to pay close attention to the implications of incoming data for the economic outlook.

During the meeting in late July, the members of the Fed voted 8 to 2 to lower the target range for the federal funds rate by 25 basis points to 2 to 2-1/4 percent.

The decision to lower rates came even though participants generally judged that downside risks to the outlook for economic activity had diminished somewhat since their June meeting.

However, the Fed noted that financial conditions appeared to be "premised importantly" on expectations that the central bank would cut rates.

The Fed is scheduled to hold its next monetary policy meeting September 17th and 18th, with CME Group's FedWatch Tool currently indicating at 98.1 percent chance of another 25 basis point rate cut.

The central bank is under increasing pressure to cut rates from President Donald Trump, who has repeatedly slammed Fed Chairman Jerome Powell's approach to monetary policy in posts on Twitter.

Powell, who was nominated by Trump, is scheduled to deliver a closely watched speech on the challenges for monetary policy at the Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming, on Friday.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the Fed minutes left the impression policymakers are just taking their cue from the bond markets.

"We will hopefully get more clarity on future rate cuts when Powell speaks on Friday but, at this point, there is little sign that the Fed is willing to push back on the markets," Pearce said.

He added, "As such, another 25bp cut in September still looks like a good bet, if only because the Fed will not want to disappoint lofty market expectations."

On the U.S. economic front, the National Association of Realtors released a report showing a notable rebound in existing home sales in the month of July.

NAR said existing home sales jumped by 2.5 percent to an annual rate of 5.42 million in July after slumping by 1.3 percent to a revised rate of 5.29 million in June.

Economists had expected existing home sales to surge up by 2.3 percent to a rate of 5.39 million from the 5.27 million originally reported for the previous month.

Sector News

With Target and Lowe's leading the way higher, retail stocks turned in some of the market's best performances on the day.

Reflecting the strength in the sector, the Dow Jones U.S. Retail Index surged up by 1.8 percent, continuing to recover from the two-month closing low set a week ago.

Significant strength was also visible among software stocks, as reflected by the 1.3 percent gain posted by the Dow Jones U.S. Software Index.

Networking, computer hardware, and biotechnology stocks also saw notable strength, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan's Nikkei 225 Index dipped by 0.3 percent, while Hong Kong's Hang Seng Index rose by 0.2 percent.

Meanwhile, the major European markets all showed strong moves to the upside on the day. While the French CAC 40 Index surged up by 1.7 percent, the German DAX Index and the U.K.'s FTSE 100 Index jumped by 1.3 percent and 1.1 percent, respectively.

In the bond market, treasuries showed a lack of direction before closing modestly lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.6 basis points to 1.577 percent.

Looking Ahead

A report on weekly jobless claims may attract some attention on Thursday, although traders may stick to the sidelines ahead of Powell's speech on Friday.

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