In a show of strength, Wall Street experienced one of its best trading days of the year on Thursday as data revealed that the U.S. economy is faring better than expected. The S&P 500 soared by 1.6%, marking its fourth-best day of the year and extending its winning streak to six consecutive sessions. This surge comes as a relief following a turbulent period in the stock market, bringing the index within a mere 2.2% of its all-time high reached last month, after briefly dipping close to 10% below it. The Dow Jones Industrial Average rose by 554 points or 1.4%, while the Nasdaq composite surged by 2.3%, led by the recovery of Big Tech stocks such as Nvidia.

The positive momentum was further bolstered by encouraging economic reports, which resulted in a surge in Treasury yields in the bond market. Notably, U.S. shoppers exceeded expectations by increasing their spending at retailers last month, while fewer workers applied for unemployment benefits, indicating a resilient job market. This news is particularly noteworthy considering concerns sparked by a disappointing jobs report last month, which raised fears of a potential economic downturn. However, these latest reports suggest that the U.S. economy may be able to achieve a balanced landing, where the Federal Reserve can effectively manage growth without causing an inflation crisis or a recession.

Brian Jacobsen, the chief economist at Annex Wealth Management, pointed out that while there are still concerns about economic growth, the current situation is becoming less daunting. Inflation, which soared to 9% two summers ago, has gradually improved, as reflected in recent reports on consumer and wholesale prices. This positive development sets the stage for the Federal Reserve to consider implementing interest rate cuts, which are popular among investors on Wall Street.

Contributing to the overall optimism is Walmart, whose shares surged by 6.6% after the retail giant reported higher-than-expected profits for the spring season. Moreover, Walmart raised its sales forecast for the full year, signaling that U.S. consumers remain confident and willing to continue spending. This is crucial, considering that consumer spending plays a vital role in driving the majority of the economy. Several other prominent companies also outperformed analysts' expectations, including Deere & Co., Cisco Systems, and Ulta Beauty.

Overall, the S&P 500 closed with a significant gain of 88.01 points, reaching a level of 5,543.22. The Dow Jones Industrial Average posted a robust increase of 554.67 points, closing at 40,563.06. The Nasdaq composite surged by 401.89 points, reaching 17,594.50. On the bond market, the 10-year Treasury yield climbed to 3.91% from 3.84% the previous day, reflecting the positive economic data.

Traders are widely anticipating a cut in the main interest rate by the Federal Reserve at its next meeting in September, which would mark the first such cut since the COVID-induced crash in 2020. However, expectations have shifted, with the majority of traders now anticipating a traditional quarter-percentage-point cut, compared to initial predictions of a half-percentage-point cut. This change in sentiment is grounded in the belief that the U.S. economy is less vulnerable than previously thought.

The positive signals from the U.S. economy also had a positive impact on smaller stocks, which often correlate more closely with the health of the domestic economy. The Russell 2000 index, consisting of smaller stocks, surged by 2.5%, further contributing to the overall market rally.

The positive sentiment spilled over to international markets, as several indexes in Asia and Europe also recorded gains. Japan's Nikkei 225 increased by 0.8% after its economy showed signs of a rebound during the spring season. Similarly, the U.K. economy experienced growth in the latest quarter, providing hope after a challenging period, prompting a rise of 0.8% in the FTSE 100 in London.

The encouraging economic reports and market rally demonstrate that the U.S. economy is resilient and capable of weathering challenges. The upcoming Federal Reserve meeting in September holds significant importance as policymakers weigh the delicate balance between stimulating growth and managing inflation. For now, the positive news has alleviated concerns and reinforced confidence in the long-term stability of the U.S. economy.