US close: Stocks put in decent gains as bond yields ease

US stocks put in decent gains on Thursday despite a mixed bag of economic data, as bond yields fell back from their recent highs.

The Dow Jones Industrial Average rose 0.4%, while the S&P 500 gained 0.6% and the Nasdaq increased 0.8%.

The 10-year US Treasury yield eased to 4.596% on Thursday, down from an earlier high of 4.647% – a fresh 16-year high on the back of recent resilient economic data and expectations that inflation may remain sticky for some time yet.

A sell-off in government bonds has weighed heavily on stocks in recent weeks – the S&P 500 has fallen by 5% so far this month – as yield levels come worryingly close to forward earnings yields on equity markets.

The forward earnings yield on the S&P 500 is around 5.5%, which leaves just 0.9 percentage points between that and current 10-year Treasury yields – the lowest spread since the early-2000s.

Meanwhile, the very real prospect of a government shutdown next week was also looming large. If no funding bill is agreed on in the next couple of days, a shutdown could begin on Sunday.

“Signs of progress on avoiding a US government shutdown were apparent overnight, but the day has seen opposing plans gain momentum, a sign of the wide split between the two parties," said Chris Beauchamp, chief market analyst at IG. "Government shutdowns of themselves don’t tend to spark bouts of risk aversion, but as part of a cocktail of other concerns like higher oil prices it could put more pressure on stocks as September gives way to October.”

Economic data comes in thick and fast

US GDP expanded at an annual rate of 2.1% in the second quarter, according to the final estimate from the Bureau of Economic Analysis, in line with the previous estimate and analysts' estimates.

However, household spending growth was revised down to just 0.8% from an earlier level of 1.7%, though this was offset by upward revisions to non-residential fixed investment, exports, and inventory investment.

Pending home sales dropped by 7.1% in August after 0.9% growth in July, well below the 0.8% decline expected by analysts.

Initial jobless claims increased by just 2,000 to 204,000 in the week to 22 September, coming in under the 215,000 consensus forecast.

Friday will see the release of the personal consumption expenditures price index, the Federal Reserve's preferred gauge of inflation, which is expected to show that the annual rate of price growth picked u to 3.5% in August, from 3.3% in July. Core inflation however, is forecast to have dipped to 3.9% from 4.2%.

Peloton races ahead

Shares in exercise bike group Peloton jumped after the fitness company announced a five-year strategic partnership with Lululemon.

Micron Technology shares were down after the chipmaker guided to a worse-than-expected loss in its first quarter, despite beating forecasts in the fourth.

Citigroup rose on reports that it was looking to sell its China retail wealth unit to HSBC.

After a shaky start, General Motors, Ford and Stellantis all finished higher on rumours that striking United Auto Workers union members could be pulling back on their pay demands as industrial action entered its 11th day.