NEW YORK (REUTERS) – Wall Street bounced back to a sharply higher close in light trading on Friday (July 1) as investors embarked on the second half of the year ahead of the long holiday weekend.

All three major US stock indexes reversed early losses to end well into positive territory in the wake of the stock market’s worst first half in decades.

Still, all three indexes posted losses for the week.

“We’re headed into the holiday weekend and having a late-day relief rally,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta.

“But we’ll likely have to wait until investors return from the holiday weekend to see if it’s sustainable at the start of the new quarter.”

Market participants now look to the second-quarter earnings season, the Labour Department’s June employment report, and the Federal Reserve’s monetary policy meeting expected later in July.

The microchip sector dropped sharply after Micron Technology Inc warned of cooling demand.

Micron’s shares slid 2.9 per cent, pulling the Philadelphia SE Semiconductor index down 3.8 per cent.

Worries over waning demand in the face of decades-high inflation were reflected in the Institute for Supply Management’s (ISM) purchasing managers’ index, which showed a deceleration in both new orders input prices.

ISM’s report seemed to back the view that the economy is cooling and inflation appears to be past its peak. This has raised the possibility that the Fed might have wiggle room for a dovish pivot after its second straight 75 basis point interest rate hike expected in July.

“The Fed is going to need to see a lot more evidence to change its mind about further continued interest rate hikes,”said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York.

“There’s still a lot of uncertainty about the economy and inflation despite early signs that inflation may have peaked.”

The Dow Jones Industrial Average rose 321.83 points, or 1.05 per cent, to 31,097.26, the S&P 500 gained 39.95 points, or 1.06 per cent, to 3,825.33 and the Nasdaq Composite added 99.11 points, or 0.90 per cent, to 11,127.85.

All 11 major sectors of the S&P 500 ended the session green, with utilities enjoying the largest percentage gain.