Dow, S&P 500, Nasdaq notch best session in nearly a week despite Microsoft warning citing U.S. dollar’s strength

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Stocks ended near session highs Thursday, shrugging off earlier weakness, after Microsoft Corp. cut its fourth-quarter guidance ahead of the opening bell, citing the toll taken by a surging U.S. dollar.

Investors also focused on comments from several Federal Reserve officials and labor-market data ahead of Friday’s jobs report.

How did stock indexes do?
  • The Dow Jones Industrial Average DJIA, +1.33% rose 435.05 points, or 1.3%, to finish at 33,248.28, just off of the session’s high.
  • The S&P 500 SPX, +1.84% surged 75.59 points, or 1.8%, closing at 4,176.82.
  • The Nasdaq Composite COMP, +2.69% gained 322.44 points, or 2.7%, ending at 12,316.90.
  • Each of the three indexes booked their largest daily percentage climb since May 27, according to FactSet data.

On Wednesday, the Dow fell 176.89 points, or 0.5%, to 32,813.23, while the S&P 500 index and Nasdaq Composite each shed 0.7%.

What drove markets?

Stocks swept to session highs in the final hour of trade Thursday, shrugging off earlier weakness after software giant Microsoft MSFT, +0.79% warned about the toll taken by a stronger U.S. dollar. The company now expects fiscal fourth-quarter sales of $51.94 billion to $52.74 billion, down from previous guidance of $52.4 billion to $53.2 billion, while earnings are seen between $2.24 to $2.32 a share, down from prior guidance of $2.28 to $2.35 a share. Shares gained 0.8%.

The ICE U.S. Dollar Index DXY, +0.13% jumped to around a 20-year high in May and remains up more than 6% year to date. The index was off 0.7% on Thursday.

“The dollar went up a lot since the beginning of the year until mid-May,” said Andrew Slimmon, Morgan Stanley Investment Management’s head of applied equity advisers team, by phone. “Then it declined.”

See: Microsoft joins chorus of tech companies warning about the effects of a strong dollar

But with the greenback dropping roughly 3% in the past three weeks, Slimmon sees signs that the dollar might be rolling over, along with peak inflation, both of which may help stocks “come storming back” after the S&P 500 in May narrowly avoided a close in bear-market territory.

Investors also remained glued to updates from Federal Reserve officials for clues to the likely path of monetary policy, with inflation at its highest in about 40 years. Cleveland Fed President Loretta Mester said Thursday that it’s too early to say if inflation has peaked, but also that the central bank must show “fortitude” in its battle to get inflation back under control, which could mean a faster pace of rate hikes in September.

Vice Chairman Lael Brainard also said Thursday she didn’t think the central bank should pause its planned series of interest-rate hikes in September, in an interview on CNBC.

Expectations that the Fed will increase interest rates by a half percentage point in June and July, but also in September, had been weighing on stocks and bonds and sending Treasury yields higher.

Despite more hawkish tones Thursday from several Fed officials, the yield on the 10-year Treasury note TMUBMUSD10Y, 2.919% slipped 1.6 basis points to 2.91%.

Oil prices turned higher after OPEC+ agreed to boost output by 648,000 barrels a day in July and August, with U.S. crude CL.1, -0.41% up 1.4% to settle at $116.87 a barrel.

The agreement comes as Russian oil production is expected to fall sharply in response to sanctions targeting the country’s energy exports, and it exceeds the prior 432,000 barrel-a-day monthly increases the group has been approving since last year in response to the COVID-19 pandemic.

In economic data, private-sector payrolls rose by 128,000 in May, according to the ADP National Employment Report released Thursday. Economists polled by The Wall Street Journal had forecast a gain of 299,000 private-sector jobs.

Separately, data showed first-time jobless claims fell 11,000 to 200,000 in the week ended May 28, while first-quarter labor productivity was revised to negative-7.3% from an initial negative-7.5%, and first-quarter unit-labor costs were raised to 12.6% from a previous estimate of 11.6%.

Jobs-related data comes a day ahead of May nonfarm payrolls numbers from the Labor Department, though economists note that the ADP data has been a poor guide to the official figures on a month-to-month basis.

“The ADP report points to a dramatic slowdown in private-payroll employment gains in May to 128,000 but, given the survey’s surprisingly poor real-time correlation with the official nonfarm payroll data, we continue to forecast that the latter will show a 300,000 when the report is released tomorrow,” wrote economists at Capital Economics, in a note.

Read: Bank of America CEO Brian Moynihan says Americans still haven’t spent all their stimulus money

Which companies were in focus?
How did other assets trade?
  • Bitcoin  BTCUSD, -1.47%  was up 0.8% near $30,265.
  • In European equities, the Stoxx Europe 600  SXXP, +0.01% rose 0.6%. London stocks didn’t trade, in observance of the Queen’s Platinum Jubilee extended holiday weekend.
  • In Asia, the Shanghai Composite  SHCOMP, +0.42% closed up 0.4%, the Hang Seng Index  HSI, -1.00% fell 0.9% in Hong Kong, and Japan’s Nikkei 225  NIK, +1.27% slipped 0.1%.

Barbara Kollmeyer contributed reporting to this report.