U.S. stocks rose as data signaled the world’s largest economy remains strong despite the Federal Reserve’s aggressive tightening campaign, bolstering the case for a so-called soft landing.

Major equity benchmarks gained as a report showed gross domestic product unexpectedly picked up steam in the second quarter, boosted by stronger-than-forecast consumer spending and robust business investment. On Wednesday, Fed Chair Jerome Powell said his staff had ditched the recession forecast it put in place in March, when banking turmoil had raised fears about a potential credit crunch.

“How much longer can Wall Street economists keep prophesying an imminent U.S. recession when economic growth remains so resilient to higher interest rates?,” said Hugh Grieves, fund manager of the Premier Miton U.S. Opportunities Fund. “It appears that the Fed is on the verge of pulling off the mythical ‘soft landing’ scenario of low unemployment and low inflation.”

The Nasdaq 100 climbed about 2 per cent as a bullish forecast from Facebook parent Meta Platforms Inc. spurred an 8 per cent rally in the shares. The S&P 500 was set for its highest since March 2022 while the Dow Jones Industrial Average advanced for a 14th straight session — on pace for a record winning run. Two-year U.S. yields and the dollar rose. West Texas Intermediate oil hovered near US$80 a barrel. European stocks held onto gains after the region’s central bank raised rates and kept options open for the next meeting.

SOFT LANDING OR RECESSION

Earlier this week, the International Monetary Fund raised its outlook for the world economy, estimating that risks have eased in recent months after the U.S. averted a default and authorities staved off a banking crisis on both sides of the Atlantic. The fund is among a growing number of voices that see a potential soft landing in the US.

Economists in a Bloomberg survey this month boosted estimates for GDP growth in the second and third quarters, although they still say there’s a 60 per cent chance the US will fall into recession in the next 12 months.

Meantime, investors are still split about the outlook for the economy: 58 per cent of respondents in JPMorgan Chase’s weekly survey expect a soft landing, while 42 per cent are bracing for a recession.

“The equity rally over the past two months implies macroeconomic scenarios that are even more positive than a soft landing and we maintain that this market action is largely a result of mechanical re-risking,” JPMorgan strategists including Marko Kolanovic wrote.

To Richard Flynn at Charles Schwab, while the solid U.S. GDP is a positive sign of a strengthening economy, high demand will also reinforce the inflationary pressures that are an “ongoing concern” for policymakers.

“As long as the labor market remains tight and inflation remains above the central bank’s 2 per cent target, we can expect to see further rate increases in coming months,” Flynn noted. “The market eagerly awaits the end of the rate hiking cycle, but may be reassured to see that policy has not yet pushed the economy closer to recession as some investors fear.”

CORPORATE HIGHLIGHTS

EBay Inc. projected earnings in the current quarter that narrowly missed analysts’ estimates, suggesting the e-commerce company is struggling to perform with a shrinking customer base.

McDonald’s Corp. reported second-quarter sales and profits that surpassed analysts’ projections, a sign that it’s still attracting diners despite tighter household budgets and higher menu prices.

Honeywell International Inc.’s profit topped analysts’ expectations as the rebound in air travel and the energy industry drove demand. The company raised the lower end of its annual earnings and sales forecast.

Harley-Davidson Inc. reported second-quarter profit that missed estimates and lowered financial guidance for the year after a production snag at its US manufacturing plant triggered a 10 per cent drop in motorcycle shipments.

Chipotle Mexican Grill Inc.’s second-quarter sales fell just short of expectations and the burrito chain’s third-quarter outlook suggested momentum is slowing.

Southwest Airlines Co. warned of higher-than-expected costs, pressuring the carrier’s earnings and countering gains from a surge in early-summer travel.

Hertz Global Holdings Inc. reported a per-share profit for the second quarter of 72 cents, beating the consensus analyst forecast of 64 cents a share as the company managed through a period of weaker used-vehicle prices in the US.

Comcast Corp. topped analysts’ estimates for profit in the second quarter, boosted by price hikes for faster broadband connections earlier in the year and an equipment upgrade offer, even as internet and TV subscribers vanished.

Key events this week:

• Japan Tokyo CPI, Friday
• BOJ rate decision, Friday
• Eurozone economic confidence, consumer confidence, Friday
• U.S. consumer income, employment cost index, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8 per cent as of 9:44 a.m. New York time
• The Nasdaq 100 rose 1.8 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The Stoxx Europe 600 rose 1.5 per cent
• The MSCI World index rose 0.8 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.8 per cent to $1.0995
• The British pound fell 0.7 per cent to $1.2851
• The Japanese yen fell 0.4 per cent to 140.81 per dollar

Cryptocurrencies

• Bitcoin fell 0.4 per cent to $29,464.38
• Ether fell 0.3 per cent to $1,874.94

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.90 per cent
• Germany’s 10-year yield declined eight basis points to 2.41 per cent
• Britain’s 10-year yield declined three basis points to 4.26 per cent

Commodities

• West Texas Intermediate crude rose 0.4 per cent to $79.09 a barrel
• Gold futures fell 1.2 per cent to $1,985.20 an ounce

This story was produced with the assistance of Bloomberg Automation.