Investors found appetite for risk Thursday after a jittery week.
Investors were encouraged by better-than-expected results late Wednesday from aluminum maker AlcoaAA, which kicked off second-quarter earnings season and stoked hopes for more upbeat corporate reports to come.
The gains were tempered by weak sales reports from retailers and evidence that the labor market is still hurting. Major indexes rose less than 1% in afternoon trading.
Money moved into more economically sensitive sectors such as technology, banks and energy, which stand to gain more if a recovery takes hold, and out of defensive shares such as drug makers and utilities — a positive sign for a market that has been losing hope for a quick recovery.
At the close of trading, the Dow Jones industrial average was up 4.76, or 0.06%, to 8,183.17. In the broad market, the Standard & Poor's 500 rose 3.12, or 0.35%, to 882.68, and the Nasdaq composite index rose 5.38, or 0.31%, to 1,752.55.
After an ebullient rally in March and April that drove market indicators up as much as 40%, stocks started to falter in mid-June as several grim economic reports suggested that a recovery was much further away than anticipated. Major market indexes are down about 7% since June 12.
In other signs of willingness to take on more risk, Treasury bond prices fell sharply as their safe-haven appeal eroded, and a measure of stock market volatility fell.
Alcoa's results were a pleasant surprise to investors who are looking closely for corporate earnings to bolster their now-fading hopes that the economy is on the mend.
Analysts expect the market to continue to drift until investors have a clearer picture from companies of where the economy is headed.
"A lot of people are sitting back, waiting to see if companies are making money," said Tommy Williams, president of Williams Financial Advisers in Shreveport, La.
Despite the small gains Thursday, the market remains highly skeptical. There is plenty of evidence on hand, including weak retail sales and record high unemployment, to suggest any rebound in growth could be feeble and take longer than investors originally thought.
"I don't see anything breathing yet," said Steven Stahler, president of the Stahler Group in Baton Rouge, of the economy. "We can drift sideways for a long time. There are so many loose ends and so many unknowns."
In other economic data Thursday, the Labor Department said the number of initial jobless claims fell last week to 565,000 — the lowest level since early January and better than what analysts were expecting. However some of the improvement was due to changes in the timing of auto industry layoffs and the holiday-shortened week, and the number of continuing claims unexpectedly jumped to a record high.
U.S. retailers did little to help the bull case for the economy, reporting generally weaker monthly sales Thursday, with apparel sellers taking some of the biggest hits. Among the biggest disappointments were Limited BrandsLTD, teen merchant Wet Seal WTSLA and The Children's PlacePLCE.
Even low-priced operator CostcoCOST struggled with a same-store sales decline compared with a year ago when business was helped by stimulus rebate checks.
Bond prices fell, sending their yields lower. An auction of $11 billion of 30-year bonds did little to move the market. The yield on the benchmark 10-year Treasury note, a widely used benchmark for mortgages and other loans, rose to 3.41% from 3.31% late Thursday.
About two stocks rose for every one that fell on the New York Stock Exchange, where volume came to a relatively low 726 million shares, compared with 957.4 million shares at the same time a day earlier.
Oil prices rose after six days of declining. Crude rose 23 cents to $60.37 a barrel on the New York Mercantile Exchange. A little over a week ago, crude prices stood at $73 a barrel. The falling price of oil has put pressure on markets around the world in recent days.
In other trading, the Russell 2000 index of smaller companies dipped 0.41, or 0.09%, to 481.73. The VIX index, a measure of market volatility, fell 1.77, or 5.7%, to 29.53.
The dollar fell against other major currencies, while gold prices rose.
Overseas Thursday, Japan's Nikkei stock average fell 1.4%. Britain's FTSE 100 rose 0.5%, Germany's DAX index gained 1.3%, and France's CAC-40 added 0.5%.