S&P 500, Nasdaq Finish Higher in Volatile Session

Investors have struggled in recent months to assess how much and how quickly the Federal Reserve will boost interest rates in a quest to temper inflation. Some money managers worry that policy tightening could slow economic growth or even tip the U.S. into a recession. Supply-chain disruptions exacerbated by the pandemic have been further hit by the war in Ukraine and China’s zero-Covid strategy. This has added to the cost of energy, food and other commodities.

Some investors said they believed recent data suggests the U.S. economy is softening and inflation is cooling, meaning the Fed might not need to act more aggressively than already planned. Federal Reserve Vice Chairwoman Lael Brainard on Thursday said half-percentage-point interest-rate increases would likely be appropriate at the Fed’s next two meetings, but didn’t commit to a slower path at subsequent meetings.

That helped fueled Thursday’s risk-on appetite among investors, with all but one of the S&P 500’s 11 sectors recently up in Thursday trading.

Aoifinn Devitt,

chief investment officer at Moneta, said consumer strength and declining stock valuations are helping to lift the outlook for stocks, which have generally fallen in 2022.

“Word on the street is that this is a good entry point—that equities have sold off so much they’ve been overdone,” Ms. Devitt said. Her firm has added to its positions in assets that work as a hedge against rising inflation, including real estate and commodities.

Crude prices gained after the Organization of the Petroleum Exporting Countries and non-OPEC oil producers led by Russia agreed at a meeting Thursday to a bigger-than-expected oil-production increase. The U.S. and Europe have pressed the group, dubbed OPEC+, to pump more crude, as Russia’s invasion of Ukraine has sent oil prices soaring.

Futures for Brent crude, the global oil benchmark, ended Thursday up $1.32 a barrel, or 1.1%, to $117.61.

“The fear is that demand is still outstripping supply, and that supply increase doesn’t make up for the difference,” said

Peter E. Klingelhofer,

managing director, investment management at investment advisory firm Hamilton Capital in Columbus, Ohio. His firm is overweight on energy equities.

In bond markets, the yield on the benchmark 10-year U.S. Treasury note declined to 2.914% Thursday, snapping a two-day winning streak. Yields and prices move inversely. 

Stocks have fallen this year, and investors are looking for signs that the recent rout is over.

Joseph Zappia,

principal and co-chief investment officer at LVW Advisers, said he is watching for indications of seller exhaustion, including rallies on strong volumes and companies reporting bad news that doesn’t drag the market down.

“Markets moved up too much too fast as a result of all the stimulus, liquidity and Covid-19. Prices went up much faster than earnings for a better part of that and now a lot of that money just has to come out of the system,” Mr. Zappia said. His firm has rotated into defensive sectors, moving away from discretionary stocks.

Investors are monitoring data on the labor market. Fed Chairman

Jerome Powell

has expressed concern in recent months that the labor market is overheating. A tight labor market can add to inflation as competition for workers boosts wage-bargaining power.

The ADP employment report showed that the private sector added 128,000 jobs in May, lower than the 299,000 that economists surveyed by The Wall Street Journal had expected. Initial jobless claims dropped to 200,000 last week from the previous week’s revised level of 211,000, the Labor Department said Thursday. The number is viewed as a proxy for layoffs.

“It’s a very difficult environment. There are so many factors at play here, and the dynamics are very difficult to interpret,” said Peter Garnry, head of equity strategy at Saxo Bank. “We think the Fed will have to be extremely aggressive to get inflation under control.” 

Microsoft shares recovered from early losses, up 0.3%. The software company cut sales and earnings guidance for the current quarter, citing the impact of foreign-exchange rates as the stronger U.S. dollar takes a toll. Analysts said the news was the latest example of companies facing margin pressure from dollar this year.

In other individual stocks, shares of

Chewy

rallied 23% after the online pet-products retailer turned in a surprise profit and forecast a revenue range that was mostly above Wall Street estimates.

MongoDB

shares rose 18% after the database company’s results topped Wall Street estimates.

Overseas, the pan-continental Stoxx Europe 600 gained 0.6%, snapping a two-day losing streak. U.K. markets were closed for a holiday. 

Major indexes in Asia closed lower, with South Korea’s Kospi and Hong Kong’s Hang Seng each falling 1%. Japan’s Nikkei 225 edged down 0.2%, while China’s Shanghai Composite bucked the trend to add 0.4%. 

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Hardika Singh at hardika.singh@wsj.com