By Nathan Allen and Michael Wursthorn
A rally in health-care stocks pushed the Dow Jones Industrial Average over 27000 for the first time after the Trump administration abandoned a plan to curb drug rebates.
The decision canceled a proposal that would have eliminated rebates from government drug plans, easing concerns of a massive disruption to the U.S. pharmaceutical industry. Shares of UnitedHealth jumped more than 5%, leading the Dow industrials higher, while gains among shares of Cigna and CVS Health lifted the S&P 500.
Stocks got further support from Federal Reserve Chairman Jerome Powell's doubling down on signals that the central bank could cut interest rates later this month. Speaking during a second day of congressional testimony, Mr. Powell reiterated the Fed's intention to "act as appropriate to sustain the expansion."
The Dow industrials gained 201 points, or 0.7%, to 27061, while the S&P 500 added 0.3%. The Nasdaq Composite rose 0.3%. Major U.S. indexes extended their gains from Wednesday's session, helping to reverse stocks' recent faltering amid concerns that investors were overestimating the likelihood of a rate cut.
Although investors continue to disagree on how much the Fed will cut rates -- opinions vary on whether the central bank will slash by a quarter of a percentage point or half of one -- several said Mr. Powell's comments all but guarantee at least one rate cut as soon as this month. And that supports continuing to hold sizable positions in U.S. stocks, some money managers said.
"With the Fed looking almost certain to cut rates in the coming weeks, it is important to position portfolios properly regardless of the outcome," Mark Haefele, global chief investment officer at UBS Global Wealth Management, said in a note to clients on Thursday, recommending holding more stocks and cash over short-maturity U.S. government bonds.
Optimism around a rate cut helped push the Dow industrials on the last leg of its journey to 27000. While the milestone doesn't bare any significance on the market, the new high underscored stocks' wild ride since last year's selloff.
If the Dow maintains its gains, 372 trading days will have passed since the blue-chip index closed above its last watermark, 26000, in January 2018. Stocks fell a month after that, entering correction territory. Stocks nearly recovered before the fourth quarter's punishing selloff unraveled the market's gains, nearly ending its bull run.
But 2019 has been different. Fed officials eased up on monetary tightening, announcing earlier this year it would hold rates steady to keep the economy growing. Resurgent trade tensions in May and deteriorating conditions in Europe and Asia now appear to be pushing the Fed to consider its first rate cut in more than 10 years.
The Dow industrials have risen 16% so far this year, while the S&P 500 has jumped 20%, with much of those gains following the Fed's encouragements of a rate cut.
On Thursday, shares of UnitedHealth gained 5.5% in recent trading, on pace for its biggest gain in more than a year. Boeing, a trade-sensitive stock, also contributed to the Dow's climb, rising nearly 2%.
In the S&P 500, Cigna jumped 11%, cutting its year-to-date decline to 6.4%, while CVS Health added 4.3%. Despite the gains, the S&P 500's health-care sector struggled as shares of biotech firms, pharmaceutical companies and life sciences shops broadly declined.
Technology and industrial stocks also notched solid gains following Mr. Powell's comments, with both sectors up 0.6% in recent trading.
U.S. government-bond yields, meanwhile, extended early gains after data showed that consumer prices rose in June, a sign inflationary pressures could be stabilizing after a period of weakness. Core inflation, which strips out volatile food and energy prices, rose faster than expected. The yield on 10-year U.S. Treasurys climbed to 2.087% from 2.061% a day earlier. Bond prices and yields move in opposite directions.
Elsewhere, minutes from the European Central Bank's June policy meeting showed that officials are likely to consider injecting fresh stimulus into the eurozone in light of weak inflation data. The minutes suggest policy makers will weigh cutting the bank's key interest rate or restarting its EUR2.6 trillion ($2.92 trillion) bond-buying program.
Stocks in Europe edged lower, reversing an earlier gain, as the pan-continental Stoxx Europe 600 declined 0.1%.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com