Dow surges more than 300 points after China hints it won't retaliate for now in trade war

Stocks jumped on Thursday after China said it wished to resolve its protracted trade dispute with the world's largest economy with a "calm" attitude.

The Dow Jones Industrial Average closed 326.15 points higher, or 1.3% at 26,362.25. The S&P 500 gained 1.3% to close at 2,924.58 while the Nasdaq Composite advanced 1.5% to 7,973.39.

When asked about its ongoing trade war with the U.S., China's commerce ministry said Thursday that it was opposed to escalating trade tensions, hinting Chinese authorities will not retaliate against the latest round of U.S. tariffs.

Trade bellwethers Boeing and Caterpillar rose at least 0.8% each while Deere closed 2.5% higher. Micron Technology gained 3.5%.

But Jeffrey Blanchard, director of research at BOS, thinks investors should not get their hopes up about the trade conflict easing anytime soon.

"It doesn't make me any more optimistic or pessimistic. We're in a situation where the president of the United States can dictate policy instantaneously via tweet, and he's up against a centrally planned economy," said Blanchard. "With centralized decision-making, you can also move quickly."

The U.S.-China trade war escalated earlier this month when China unveiled new levies on $75 billion worth of U.S. products. President Donald Trump then announced he would raise tariffs on a slew of Chinese goods starting in September.

Michael Katz, partner at Seven Points Capital, pointed out that Trump has dialed back his rhetoric against China over the past few days.

"He cares about what the markets are doing very much. He realizes, if he keeps going down the road of going head to head with China, the market is going to react," Katz said. "For now, he's scaled it back. We'll see how long that lasts."

The escalation around trade has sent the major averages lower this month. The Dow and S&P 500 were both down around 2% in August through Thursday's close. The Nasdaq has lost 2.5%.

"As China is losing patience with President Trump's strategy, I think the market is repricing until we get more clarity on trade," said Jeff Zipper, managing director of investments at U.S. Bank Private Wealth Management.

The bond market has also flashed a recession signal this month. The closely-watched spread between the 10-year Treasury yield and the 2-year rate is trading around its lowest level since 2007. This is called a yield-curve inversion. Investors fear it because it has historically preceded a recession. Meanwhile, the rate on the benchmark 30-year Treasury bond sank to an all-time low.

Investors have also loaded up on traditional safer assets, such as gold and silver, this month. The SPDR Gold Trust (GLD) is up 8.2% in August while the iShares Silver Trust (SLV) has surged around 12% in August.

"If central banks sit back and do nothing, and the Trade War persists, we go into recession. This is not likely," said Nick Raich, CEO of The Earnings Scout, in a note. "Central banks remain ready, willing and able to extend the economic cycle taking us into probably something like inning #24."

In economic news, second-quarter U.S. GDP growth was revised down to 2% from 2.1%. The revision was in line with analyst expectations. Pending home sales for July will follow slightly later in the session.

—CNBC's Sam Meredith contributed to this report.