Bad news is good news for stocks

Stocks closed broadly higher again Thursday as investors grew more optimistic that a slowing U.S. economy means the Federal Reserve can temper its aggressive interest rate increases aimed at taming inflation.

The Standard & Poor’s 500 rose 1.2% as more than 80% of the stocks in the benchmark index closed higher. The Dow Jones industrial average gained 1%, and the Nasdaq composite added 1.1%. Smaller-company stocks edged out the broader market, lifting the

Russell 2000 by 1.3%.

The Commerce Department reported that the U.S. gross domestic product, the broadest gauge of the economy, contracted at a 0.9% annual pace in the Aprilthrough-June quarter, after a 1.6% annual drop from January through March.

The Federal Reserve is trying to slow the U.S. economy and tame the highest inflation in 40 years by raising interest rates, most recently on Wednesday.

“Sometimes bad news is good news,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “The Fed may not have to be as aggressive as once thought. That’s what investors are looking at.”

The central bank raised its key short-term interest rate by three-quarters of a percentage point Wednesday, sparking a broad market rally that helped give the Nasdaq its biggest gain in more than two years. The major indexes are now all on pace for a weekly gain, extending Wall Street’s strong July rally.

On Thursday, the S&P 500 rose 48.82 points to 4,072.43, the Dow advanced 332.04 points to 32,529.63, the Nasdaq gained 130.17 points to end at 12,162.59 and the Russell 2000 climbed 24.69 points to 1,873.03.

Apple rose 0.4% after reporting that profit and revenue fell in its Aprilthrough-June quarter; the results still beat analysts’ forecasts.

Amazon jumped more than 12% in after-hours trading. It reported its second consecutive quarterly loss, but its revenue topped Wall Street’s expectations.

Meanwhile, Spirit Airlines rose 5.6% after JetBlue said it agreed to buy the budget airline for $3.8 billion to create the nation’s fifthlargest airline.

Bond yields were broadly lower. The two-year Treasury yield fell to 2.87% from 2.98% late Wednesday. The 10-year yield, which influences mortgage rates, fell to 2.68% from 2.74%.