By Yasin Ebrahim
Investing.com -- The S&P 500 advanced Thursday, led by a jump in financials after major Wall Street banks passed the annual Federal Reserve’s stress test, showing they are strong enough to weather a potential recession.
The S&P 500 rose 0.3%, the Dow Jones Industrial Average added 0.7%, or 244 points, and the Nasdaq fell 0.2%.
Major Banks Show Strength in Fed Stress Test
Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS) led the rally in banks as optimism in the sector was lifted after the Fed’s stress test on Wednesday showed that 23 of the biggest U.S. lenders would be able to weather a severe recession scenario.
Some on Wall Street, however, said while the results delivered a clean bill of health for major banks, doubts about the smaller regional banks persist following the recent banking turmoil.
“Of course, while the largest banking institutions in the country seemingly passed the exam with flying colors, concerns remain surrounding the broader ability of the banking sector, particularly mid-sized regionals, to weather a continued rising rate environment,” Stifel said in a note.
U.S. Economy Flexes Muscles Amid Positive Data Surprise
Concerns about a rising rate environment, meanwhile, were stoked further following data pointing to further signs of economic strength that sent Treasury yields sharply higher on expectations for the Fed to resume rate hikes.
The final reading of first quarter gross domestic product, or GDP, jumped to 2% from a prior estimate of 1.3%, topping economists’ forecasts for 1.4%. Initial jobless claims, meanwhile, dropped by the most since 2021.
Atlanta Fed President Raphael Bostic, however, continued to signal that the Fed should remain on pause, saying it would be “wise” to keep rates steady at future meetings as inflation was likely to slow without additional tightening.
Tech Struggles as Rates Jump, Micron Slumps
Tech struggled to cut losses as Treasury yields jumped, while pressure in semiconductor stocks following a slump in Micron also weighed on the sector.
Micron Technology Inc (NASDAQ:MU) reported better-than-expected quarterly results and current-quarter guidance, but fell more than 4% even as Wall Street analysts touted that the memory supply-demand imbalance had likely passed.
With the memory cycle having “now turned and the narrative in semis now seeming more about 2025 than 2024,” UBS said it was “hard not to really like this stock for what could and should be a very strong year for memory industry revenue and (potentially) profits.”
Energy Rides Optimism as Buffett Ups Stake in Occidental
Energy was led higher by jump in oil majors including Exxon Mobil Corp (NYSE:XOM) and Occidental Petroleum Corporation (NYSE:OXY) after Warren Buffett's Berkshire Hathaway (NYSE:BRKa) increased its stake in the company to 25%.
Big Mover: FREYR Battery Rallies on Morgan Stanley Upgrade
In other news, FREYR Battery (NYSE:FREY) rallied 20% after Morgan Stanley upgraded the stock to Overweight from Equal-weight, citing confidence in the battery maker's ability to reach key milestones.