US stock indexes rally following solid retail sales report

Stocks rallied on Wall Street in afternoon trading Thursday, placing the major indexes on track for more record highs.

A batch of solid economic data injected more optimism into markets following the signing of an initial trade deal between the U.S. and China.

Consumers have been the backbone of economic growth and the government’s December report on retail sales showed that they continued spending at a healthy pace. Encouraging reports on manufacturing, weekly applications for unemployment aid and homebuilders' confidence also helped lift the market. Investors were also weighing a mixed bag of corporate earnings.

The good economic news follows the signing of the “Phase 1” trade deal between the U.S. and China that puts the nations on a clearer path to ending their 18-month long trade war. The pact eases some sanctions on China, which has agreed to step up its purchases of U.S. farm products and other goods.

Meanwhile, the Senate approved a new North American trade agreement Thursday that rewrites the rules of commerce with Canada and Mexico.

The trade deals and positive economic data have helped fuel optimism that corporate profits will be strong this year after coming in flat to down for most of 2019, and that's keeping investors in a buying mood.

“Because we are continuing to see 2-2.5% GDP growth in the U.S., because both economic growth and earnings are expected to show gains in both the developed and emerging markets, that will likely lead to better earnings here in the U.S.,” said Sam Stovall, chief investment strategist at CFRA.

Technology companies were the clear leaders. Many of the companies stand to benefit from progress in trade relations because they are reliant on China for sales and supplies. Microsoft rose 1.4% and Cisco Systems gained 1.8%.

A mix of retailers and consumer product makers also made solid gains. Home Depot rose 1.6% and Hanesbrands gained 1.5%.

Financial companies, including banks, also rose. Morgan Stanley led the sector after reporting quarterly results that topped Wall Street's forecasts.

Energy companies and household goods makers lagged the market in another sign that investors were confidently shifting more money into riskier holdings.

The yield on the 10-year Treasury rose to 1.80% from 1.78% late Wednesday. Bond prices made a significant move lower, sending yields higher, following the encouraging retail sales report.

KEEPING SCORE: The S&P 500 index was up 0.7% as of 3:39 p.m. Eastern time. The Dow Jones Industrial Average rose 232 points, or 0.8%, to 29,262. The Dow closed above 29,000 for the first time on Wednesday. The Nasdaq rose 0.8%. The Russell 2000 index of smaller company stocks outpaced other indexes and rose 1.2%.

Markets in Europe closed mostly higher.

EARNINGS ROUNDUP: The first heavy week of corporate earnings reports rolled along with banks mostly finishing their reporting. Investment bank Morgan Stanley climbed 7.1% after reporting a surprisingly good jump in fourth-quarter profits on the strength of its trading desks. Bank of New York Mellon dropped 8.1% after reporting disappointing revenue.

Paint and coatings maker PPG Industries fell 1.8% after falling short of Wall Street’s profit forecasts. Aluminum producer Alcoa slid 11% after reporting a surprisingly sharp loss.

S&P 500 companies

HOLIDAY GLITTER: Signet Jewelers skyrocketed 41.2% after the diamond jewelry retailer significantly raised its fourth-quarter profit forecast. The company made the change because a strong holiday shopping season that will push a key sales measure into a surprising gain for the quarter.

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AP Business Writer Damian J. Troise contributed.