NEW YORK (AFP) – Wall Street stocks rallied again on Thursday (July 28), shrugging off a weak US GDP report that deepened recession talk but generated hopes among investors that the economic slowdown means the Federal Reserve will moderate its aggressive interest rate hikes.

The Dow Jones Industrial Average finished 1 per cent higher at 32,529.63.

The broad-based S&P 500 climbed 1.2 per cent to 4,072.43, while the tech-rich Nasdaq Composite Index tacked on 1.1 per cent to 12,162.59.

Stocks fell soon after the second-quarter data was released, showing US domestic product declined at an annual rate of 0.9 per cent, following an even bigger drop in the first quarter.

But markets pivoted later in the morning, betting that clear signs of economic weakness would prompt the Fed to ease off on steep increases in borrowing costs. The US central bank on Wednesday announced its second straight 75 basis point increase, and signaled it is prepared to do more.

“The real catalyst… is a belief that bad news (earnings disappointments and weak data) is good news (fewer rate hikes from the Fed),” said in an analysis.

Analysts also pointed to improved investor sentiment that has enabled stocks to advance despite lacklustre earnings because the results have not been as bad as feared.

Also, many investors believe that even if there is a US recession, “any downturn that we are going through will likely be mild,” said Jack Ablin, chief investment officer of Cresset Asset Management.

But Ablin said it was still too soon to “declare victory” on inflation.