By Gunjan Banerji, Avantika Chilkoti and Jessica Menton
U.S. stocks surged Wednesday after strong earnings reports from retailers eased some fears about slowing economic growth.
Bond and equity markets have been gloomy about global growth in recent weeks, with many investors expecting a cycle of monetary easing from leading central banks. Some of the anxieties surrounding growth were tempered Wednesday after retailers revealed their financial results for the last quarter.
The Dow Jones Industrial Average climbed 1%, and the S&P 500 jumped 0.8%. The Nasdaq Composite advanced 0.9%.
Target shares soared 19%, on track for a new high, as it reported that sales and profit rose in the second quarter and the retailer raised its earnings guidance for the year. Lowe's also reported higher profits that beat analysts' estimates, pushing shares up 10%. The consumer discretionary and tech sectors within the S&P 500 were the biggest winners.
"There has been this very big imminent recession narrative that's taken hold of the market," said R.J. Grant, director of equity trading at KBW. The latest earnings show "that the consumer is a lot healthier than people think."
Stocks maintained their gains after minutes from the Federal Reserve's latest meeting showed officials stressed the need to be flexible with how they might act to lower interest rates in the months ahead.
"The market seems to be reacting positively not only to the underlying fundamentals of the retailers and that they're strong, but also that the institutions both on a fiscal and monetary basis stand ready to do what needs to be done to keep the expansion going in the U.S.," said Thomas Martin, a senior portfolio manager at Globalt Investments
On Friday, Federal Reserve Chairman Jerome Powell speaks in Jackson Hole, Wyo., at the Fed's annual economic policy symposium. Several investors warned that markets could grow more turbulent as investors analyzed these comments. The Fed has been a primary driver for markets in recent weeks.
The yield on the 10-year U.S. Treasury note was 1.562% Wednesday, according to Tradeweb, unchanged from before the release of the minutes and from 1.557% on Tuesday.
"Right now we're kind of experiencing the calm before the storm," said Bryce Doty, senior portfolio manager at Sit Investment Associates, cautioning that markets could grow rocky.
The stakes are high for comments from the Fed this week. Analysts will be watching closely for insights into the debate surrounding last month's rate cut, as many, including Leslie Sita, portfolio manager in Lombard Odier IM's fundamental fixed income team, flagged concerns around the president's criticism of Fed Chairman Jerome Powell.
" Trump has made it clear he didn't like Powell's policy," she said, adding that strategists at Lombard Odier are forecasting a cut of 50 basis points at the next meeting. "Even if Powell was wanting to mention that he's independent in the way he does things, obviously the pressure was there."
Investors also welcomed possible political changes in Italy. The Stoxx Europe 600 climbed 1.2%, a day after the country's prime minister resigned.
The yield on Italian government debt reached its lowest level in around three years Wednesday, continuing to drop after Prime Minister Giuseppe Conte resigned Tuesday, triggering a power struggle within the government in Rome at a time when growth is faltering.
Italy's benchmark FTSE MIB equities index outperformed other indexes in the region.
In commodities, the price of Brent crude climbed 0.9% to $60.57 a barrel as tensions in the Strait of Hormuz threatened global supplies while analysts worried global trade concerns could cap demand for oil in the coming months.
Australia announced plans to join a U.S.-led coalition protecting oil tankers and cargo ships from attacks by Iran in the region on Wednesday, as pressure on Tehran increased.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com, Avantika Chilkoti at Avantika.Chilkoti@wsj.com and Jessica Menton at Jessica.Menton@wsj.com