The stock market rose Thursday after a pair of lackluster economic reports convinced traders that the U.S. central bank will continue to boost the economy with its stimulus program.
Unemployment claims rose and an initial estimate of first-quarter economic growth was revised slightly lower. That suggests the U.S. economy may still need some time to recover from its funk and that the Fed will keep up its $85 billion in monthly bond purchases.
"The big worry that's been hitting the market lately, that the Fed might step back prematurely, might be fading a little today on the idea that the economy does need a bit more support," Jeff Kleintop, chief market strategist at LPL Financial, said.
The Dow closed up 21.73 points, or 0.1 percent, at 15,324.53 points. In other trading, the Nasdaq composite index rose 23.78 points, or 0.7 percent, to 3,491.30.
The S&P 500 rose in early trading, climbing as much as 13.6 points, or 0.8 percent, by late afternoon. The index then gave up some of the gains in the last hour of trading to end up just 6.05 points, or 0.4 percent, at 1,654.41.
The rise in the Standard & Poor's 500 index was led by banking and insurance stocks, which gained 1.1 percent. Among individual bank stocks, Bank of America rose 35 cents, or 2.6 percent, to $13.87. The stock is trading at its highest in more than two years. JPMorgan gained 95 cents, or 1.7 percent, $55.62.
Banks and other stocks that stand to benefit the most from an improving economy have surged this week, a change from earlier in the year when investors favored dividend-rich stocks like utilities. Now investors are selling dividend-rich stocks and buying so-called growth stocks. The S&P's financial index is up 2.1 percent this week, and its utilities index is down 2.5 percent.
Even after that increase, by one measure bank stocks are still less expensive than the broader market. The price-to-earnings ratio for financial companies is still lower than that of S&P 500 average. The so-called P/E ratio is 14.4 for banks and insurers, compared with 16.2 for all companies in the S&P, according to FactSet.
Stocks also got a boost from deal news.
NV Energy surged $4.34, or 23 percent, to $23.62, leading a broad advance in utility companies. Clearwire, a wireless network operator, surged $1.02 cents, or 29 percent, to $4.50 after satellite TV operator Dish Network raised its bid for the company to $6.9 billion.
In economic news, the number of Americans seeking unemployment aid rose last week, a sign layoffs have increased, the Labor Department said Thursday. Claims for unemployment aid rose 10,000 last week to 354,000. The government also lowered its estimate for U.S. economic growth in the first three months of the year to 2.4 percent from 2.5 percent.
Trading has been choppy on Wall Street this week as investors wrestle with the question of whether the Fed will ease its economic stimulus. Minutes released last week from the Fed's last policy meeting showed that some central bank officials favored slowing the purchases as early as next month, if the economy improves enough. The program has been a major factor supporting a rally in stocks by encouraging investors to buy riskier assets.
The Dow Jones industrial average rose 106 points Tuesday, then fell by the same amount Wednesday, leading some market watchers to ask whether the rally that has pushed the Dow and S&P 500 index to record levels may be fizzling out.
While the prospect of a change in Fed strategy is unsettling investors, ultimately, they should welcome the end of the Fed's stimulus because it means that the economy is strong enough to stand on its own two feet, JJ Kinahan, chief derivatives strategist at TD Ameritrade, said.
"It's the vote of confidence," Kinahan said. "It should mean that the overall economy is healthy."
Phone companies and the makers of consumer staples were the biggest decliners, dropping 1 percent and 0.4 percent respectively. These so-called defensive stocks that pay rich dividends have fallen out of favor this month after investors pushed their prices higher at the start of the year.
Stock investors have had a good year so far. The Dow is 16.9 percent higher on the year and has set record closing highs on nine days in May. The S&P 500 index is up 16 percent and is on track to rise for a seventh straight month, its longest winning streak since 2009.
In commodities trading, oil rose 48 cents to $93.61 a barrel. Gold rose $20.20, or 1.5 percent, to $1,411.50 an ounce. The dollar fell against the euro and the Japanese yen.
In government bond trading, the yield on the 10-year note was unchanged at 2.12 percent.
Among other stocks making big moves:
— EMC, a data storage equipment maker, rose $1.27, or 5.4 percent, to $24.93 after the company said it will ramp up its stock buyback program and begin paying a quarterly dividend.
— Big Lots, a discount store chain, fell $3.45, or 9 percent, to $34.93 after the company reported a 21 percent drop in quarterly income and lowered its full-year revenue forecast.
— First Solar rose $3.39, or 6.5 percent, to $55.15 after the company's stock was upgraded to "buy" from "neutral" by Goldman Sachs. The investment bank says the solar energy's company's earnings may rise more than Wall Street forecasts and that it might buy other companies or its own stock as it generates more cash.