Stocks ended modestly higher on Thursday with the Dow recovering from its worst one-day drop in nearly four weeks, as the latest round of tepid economic data suggested the Fed's bond-buying program would remain intact.
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While major averages are near breakeven for the week, stocks are on track for their first positive month of May since 2009.
The Dow Jones Industrial Average closed higher, at 15,324.60, led by Bank of America and UnitedHealth, after dropping more than 100 points in Wednesday's session.
The S&P 500 and the Nasdaq also ended in positive territory. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, gained near 15.
"After some early hesitation, the market got in gear on the upside with leadership from the semiconductors and financials, the kind of leadership you like to see if you are a bull," wrote Elliot Spar, market strategist at Stifel Nicolaus.
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Weekly jobless claims unexpectedly gained 10,000 last week to a seasonally adjusted 354,000, according to the Labor Department. Economists surveyed by Reuters expected a reading of 340,000. But a Labor Department analyst said claims for five states, including Virginia, Minnesota and Oregon, were estimated since state offices had less time to prepare data because of the Memorial Day holiday.
And the U.S. economy grew at a 2.4 percent annual rate in the first three months of the year, according to revised numbers from the Commerce Department, falling slightly short of estimates for a 2.5 percent gain.
Also on the economic front, pending home sales ticked up 0.3 percent in April from the previous month, according to the National Association of Realtors, rising to the highest level in three years.
"We think this market rally can continue and traders should continue to be long the market, but still hedge to the downside," said Randy Frederick, managing director of active trading and derivatives at Schwab Center for Financial Research. "We still have an overly accommodative Fed stance and there's no indication that it's going to change anytime soon. As long as the Fed continues to buy bonds, there's plenty of reason to be bullish."
Additionally, investors remained sensitive to the notion that the Fed could soon begin to pull back on its massive unlimited stimulus. Analysts took heart in the comments of Boston Fed President Eric Rosengren, one of the central bank's most vocal proponents of accomodative monetary policy, who said the Fed should continue to flood the economy with more stimulus until the recovery becomes "self-sustaining" and labor markets thaw.
"We do not believe key members of the FOMC have already made up their minds on what the next change in Federal Reserve policy should be," said Nomura analysts in a research note. "Any decision to change the pace of asset purchases will depend on how economic data and financial markets evolve."
Treasury prices rallied after the government auctioned $29 billion in 7-year notes at a high yield of 1.496 percent. The bid-to-cover ratio, an indicator of demand, was 2.70.
