NEW YORK (TheStreet) -- Overseas economic worries were pushed to the back of investors' minds on Thursday as Wall Street focused squarely on a rally among retail names and what a benign consumer inflation report might mean for the Federal Reserve's rate hike plans.
Best Buy (BBY) was spiking 6.8% after earning an adjusted 32 cents a share in the third quarter, topping analysts' estimates of 25 cents. Lifestyle retailer Williams-Sonoma (WSM) , a rare consistently good performer in retail, was surging nearly 9% after beating earnings estimates and reporting an 8.7% increase in comparable-store sales in its recent quarter.
The S&P 500 gained 0.15% while the Nasdaq spiked 0.54%. The Dow Jones Industrial Average hovered just above its flatline.
Bolstering sentiment for retailers, the consumer price inflation stayed low in October as gasoline prices fell more than 3%. The Consumer Price Index was unchanged compared to a forecast 0.1% fall. "Core" CPI, which excludes volatile items such as energy and food, came in as expected at 0.2% compared to 0.1% a month earlier.
"The outlook remains for a muted inflation outlook in the short-term," said Andrew Wilkinson, chief market analyst at Interactive Brokers, in a report. "However, a focus on the medium-to-long-run, when the slide in crude oil prices has run its course, may leave investors nervous about an inevitable rise in cost pressures."
The latest reading could give the Fed pause as it mulls the return to normal monetary and interest rate policy. Over the past 12 months, prices have risen 1.7%, still below the Fed's annual 2% target rate.
"Fed officials are increasingly concerned inflation will remain below the Fed's longer-term target of 2% for years, with some Committee members fearful it could be even longer than that before reaching and maintaining stable prices at the desired level," Sterne Agee chief economist Linsdey Piegza wrote in a note. "This morning's benign inflation report does little to alleviate those fears, with headline inflation still noticeably below the Fed's threshold."
Meanwhile, weekly initial jobless claims slipped to 291,000 in the week ended last Friday, compared to a forecast 286,000. "The jobless rate is still above its pre-recession level in 2007, but is trending in the right direction," Wells Fargo chief macro strategist Gary Thayer wrote in his morning analysis.
"The U.S. economy is not as strong as it could be; employment conditions are improving and are likely to help boost consumer confidence and spending during the next year," he added.
Fed speculation and a retail rally was enough for markets to shake off earlier grim news from overseas. Chinese factory activity effectively stalled in November as the flash China Manufacturing PMI fell to six-month low of 50, indicative of neither growth nor contraction. The data gave concern to investors that the world's second-largest economy was on the verge of shrinking.
Meanwhile, eurozone PMI showed widespread weakness across the region with a reading of 51.4, well below even the lowest of forecasts and hitting a 16-month low. The eurozone has suffered deflation concerns and unemployment woes and recent weaker-than-expected data gives investors reason to fear the region could fall into recession.
"A fall in the eurozone PMI to a 16-month low raises the risk of the region slipping back into a renewed downturn," Markit's chief economist Chris Williamson said in the survey release. "The single currency area is struggling to eke out any growth, with the PMI indicating that GDP is likely to have risen by just 0.1-0.2% in the fourth quarter."
Japan, which slipped into its own recession in its third quarter, also posted slightly slower manufacturing activity in November, down 0.3 points to 52.1. However, output rose to its highest in eight months, giving some hope for resilience in the Japanese economy.
Elsewhere among retailers, home décor chain Kirkland's (KIRK) rallied 21.8% after forecasting a mid-single-digit increase in sales for the fourth quarter.
Dollar Tree (DLTR) spiked 4.9% after reporting its best same-store sales growth since 2011, while Urban Outfitters (URBN) shares were caught up in the retail rally, climbing 6.5%. The SPDR S&P Retail ETF (XRT) surged 1.6% to $92.48, pushing the fund to 5% growth for the year.
-- Written by Keris Alison Lahiff in New York.