By Herbert Lash and Shreyashi Sanyal
(Reuters) - The Nasdaq and S&P 500 surged to nine-month closing highs on Thursday as signs of slowing wage pressure raised hopes the Federal Reserve will pause hiking interest rates and investors cheered a vote in Congress to suspend the U.S. debt ceiling.
The number of Americans filing new claims for unemployment benefits rose modestly last week, while private payrolls increased more than expected in May, pointing to a still tight labor market that could push the Fed to keep rates elevated.
Focus now shifts to the Labor Department's closely watched unemployment report for May, due on Friday. The data will help determine whether the Fed sticks with its aggressive rate hikes.
The Nasdaq and S&P 500 closed at their highest since August 2022 as investors embraced a resilient labor market amid optimism the Fed can engineer a soft economic landing.
The Dow Jones Industrial Average rose 154.09 points, or 0.47%, to 33,062.36, the S&P 500 gained 41.26 points, or 0.99%, to 4,221.09 and the Nasdaq Composite added 165.70 points, or 1.28%, to 13,100.98.
Volume on U.S. exchanges was 11.14 billion shares, compared with about 10.58 billion average for the full session over the last 20 trading days.
Wage inflation is slowing, as reported by ADP, while a Labor Department report said the price of labor per single unit of output rebounded at a 4.2% rate in the first quarter - a downward revision from the 6.3% growth pace estimated in May.
"Unit labor cost data for the first quarter normally doesn't trigger a reaction. But it signaled a significant improvement," said Edward Moya, senior market analyst at OANDA in New York.
"The market became confident that, 'wow the Fed rate hike for June is pretty much not happening' and confidence is falling for raising rates for July," he said.
Futures trading showed a 76.2% probability that the Fed will desist from hiking rates at its June 13-14 policy meeting, according to CME Group's (NASDAQ:CME) FedWatch Tool.
The bill approved late Wednesday in the House of Representatives to suspend the $31.4 trillion debt ceiling headed to the Senate, which must enact the measure before Monday when the government could start to run out of money.
"I'm still on the cautious side, but I also recognize that there are a few catalysts that can continue to support the market for period of time," said Jimmy Chang, chief investment officer at Rockefeller Global Family Office in New York.
"Most people will naturally gravitate towards the soft landing scenario," Chang said. "My base case remains that we will get a recession in the coming quarters."
Leading the S&P 500 higher was a 5.1% gain in Nvidia (NASDAQ:NVDA) Corp, though the chipmaker's surge on its forecast of greater AI-related revenue still fell short of pushing the company into the elite club of companies valued at $1 trillion or more.
C3.ai Inc slumped 13.2% after the artificial intelligence company forecast an annual revenue outlook below analysts' estimates.
"There's going to be a lot of companies that we look at five years from now and be like, 'why did we think that company was going to be the next big thing?'" said Jason Pride, chief investment officer of private wealth at the Glenmede Trust Co in Philadelphia. "We've been staying cautious because of that."
Limiting gains on the Dow, Salesforce (NYSE:CRM) Inc fell 4.7% after the company posted its slowest pace of revenue growth in 13 years.
Goldman Sachs Group Inc (NYSE:GS) slid 2.3% after the lender revealed plans of more workforce reductions as the difficult economic environment weighs on dealmaking.
Meta Platforms Inc (NASDAQ:META) rose 2.98%, helping boost the Nasdaq after unveiling its next-generation mixed reality headset.
Dollar General Corp (NYSE:DG) plunged 19.5% as retail companies cut their full-year sales forecasts as high inflation dimmed the U.S. consumer outlook.
Advancing issues outnumbered declining ones on the NYSE by a 3.04-to-1 ratio; on Nasdaq, a 1.99-to-1 ratio favored advancers.
The S&P 500 posted seven new 52-week highs and 18 new lows; the Nasdaq Composite recorded 57 new highs and 110 new lows.