NEW YORK (TheStreet) -- Wall Street witnessed the silver lining of sliding gasoline prices on Thursday as an unexpected jump in November consumer spending boosted retail stocks. Benchmark indices made a good show of partially recouping punishing losses suffered over Wednesday's session, though still have a way to go to end the week in positive territory.
Some of the day's initial gusto in which the S&P 500 surged 1.5% was exhausted after crude oil slipped below the psychological $60-a-barrel level. The S&P 500 closed 0.45% higher, the Dow Jones Industrial Average added 0.37% and the Nasdaq popped 0.52%.
Energy stocks retreated from earlier highs as West Texas Intermediate closed below $60 for the first time since July 2009. The day's decline was on top of a 5% dive on Wednesday after OPEC cut demand forecasts for 2015.
The Energy Select Sector SPDR ETF (XLE) slipped 0.07%, paring gains of over 2% earlier in the session. Mid-cap oil explorers and drillers were among the hardest hit with Transocean (RIG) down 2.1% and Nabors Industries (NBR) falling 3.1%.
"Any time there's a big crisis there's a lot of throwing the baby out with the bathwater," Patty Edwards, managing director for investments at U.S. Bank, said of the energy selloff. "Until we have a little bit more sense of stability, the whole idea is to never try to catch a falling knife because you end up getting cut."
The shining star of the day was retail stocks. The SPDR S&P Retail ETF (XRT) rose 1.3%, while industry giants Walmart (WMT) , Target (TGT) and Costco (COST) all gained. Staples (SPLS) was the best performer on the S&P 500 after activist investor Starboard Value increased its stake in the office supplies chain and competitor Office Depot (ODP) , a move which could put pressure on the companies to merger, The Wall Street Journal reported.
Overall retail sales climbed 0.7% in November, its largest gain since March, compared to forecasts for a 0.4% increase. Core retail sales, excluding automobiles, gasoline and food services, rose 0.6%.
Increased consumer spending in November validated what economists assured traders would happen since a crash in crude oil sparked broad market selloffs: lower gasoline prices would fuel consumer confidence to spend, a more important measure of economic health given consumer spending contributes more than two-thirds of GDP. The National Retail Federation reaffirmed its 4.1% growth forecast for the holiday season.
"This is the first tangible sign that lower oil prices are supporting the consumer," said Anthony Valeri, investment strategist for LPL Financial, in a call. "The U.S. consumer obviously got the holiday shopping season off to a strong start... From our calculations consumer spending has begun the fourth quarter at the same pace as the third quarter so it's consistent with GDP growth of around 3%."
Walgreen (WAG) shares advanced 7.1% after CEO Greg Wasson announced his retirement, effective once the company's merger with Alliance Boots is completed. Urban Outfitters (URBN) climbed 7.7% following a Securities and Exchange Commission filing in which the retailer disclosed fourth-quarter comparable sales in the low-single digits after a negative result in its third quarter.
Lululemon (LULU) added 9.2% after beating third-quarter earnings estimates, though gains were restricted as operating margins were pressured.
Delta Air Lines (DAL) climbed 4.6% after the airline said it expects pretax income to increase to $5 billion next year as a result of the drop in oil prices. Airlines extended Wednesday's rally with United Continental (UAL) , Southwest Airlines (LUV) and American Airlines (AAL) each higher.
-- Written by Keris Alison Lahiff in New York.