By Jessica Menton and Caitlin Ostroff
U.S. stocks rebounded Thursday on rising bets that the Federal Reserve would cut interest rates again this year.
The Dow Jones Industrial Average climbed 304 points, or 1.1%, to 27169, a day after the blue-chip index posted its worst one-day drop since May 31. The S&P 500 added 1.1%, as gains in technology and consumer-staples shares offset losses in energy stocks. The technology-heavy Nasdaq Composite rose 1.6%.
Stocks slumped Wednesday after Fed Chairman Jerome Powell disappointed investors when he rolled back expectations for future interest-rate cuts. But stocks bounced back Thursday, as traders grew more confident that the central bank would cut rates again in September.
"The market is starting to realize that the Fed may provide a and still be accommodative on future rate cuts later this year," said Dan Heckman, national investment consultant at U.S. Bank Wealth Management.
Federal-funds futures showed the market was pricing in a 61% chance of another 25 basis point rate cut in September. That is up from around 49% on Wednesday, according to CME Group.
Investors are looking ahead to Friday's employment report for signs that the U.S. economy remains on solid footing amid concerns over trade tensions and slowing global growth. Economists surveyed by The Wall Street Journal expect U.S. employers added 165,000 jobs in July while the unemployment rate is projected to tick down to 3.6%.
Despite Thursday's rebound, some investors were still cautious.
"This market is riding higher on lower rates," said Lewis Altfest, chief executive at Altfest Personal Wealth Management. "But investors are still unsure about whether more rate cuts are a done deal, so they're looking elsewhere to see how the U.S. economy will perform."
Data released Thursday showed U.S. factory activity lost momentum in July. The Institute for Supply Management said Thursday its manufacturing index fell to 51.2 in July from 51.7 in June, the fourth consecutive month of slowing expansion. Readings above 50 indicate activity is expanding across the manufacturing sector, while those below 50 are a sign of contraction.
The 10-year U.S. Treasury yield fell below 2% for the first time since early July, trading at a recent 1.959%, down from 2.034% Wednesday, according to Tradeweb. Yields decline when bond prices rise.
The WSJ Dollar Index, which measures the currency against a basket of its peers, slipped less than 0.1% after climbing more than 0.2% earlier Thursday.
In commodities, U.S. crude prices dropped 2.9% to $56.88 a barrel, weighed down by a stronger dollar that makes commodities denominated in the U.S. currency more expensive for overseas buyers. Brent crude, the global benchmark, fell 2.5% to $63.45 a barrel. Gold dropped 0.7%.
On Thursday, shares of Qualcomm fell 1.2% after the chip maker cut its full-year forecast for global smartphone sales. Prudential Financial's shares dropped 8.6% after the company posted a slight increase in adjusted operating earnings.
General Motors's stock rose 3.1% after the car maker reported second-quarter results that beat expectations. Shares in Verizon Communications rose 1.3% after the company said it added more wireless customers than some analysts expected in its second quarter.
Royal Dutch Shell slid 5% after the energy giant said its profit fell. The company cited lower oil and gas prices and weaker refining margins, outweighing a rise in production.
Elsewhere, the Stoxx Europe 600 rose 0.5%. The British pound was down 0.1% against the dollar, hovering near historic lows after the Bank of England left interest rates unchanged.
In Asia, both China's benchmark Shanghai Composite Index and Hong Kong's Hang Seng fell 0.8%.
Write to Jessica Menton at Jessica.Menton@wsj.com
(END) Dow Jones Newswires
August 01, 2019 12:47 ET (16:47 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.