US stocks rallied for the second day in a row on Thursday, even after the latest GDP showed a second straight contraction, as investors bet the economic slowdown will soon force the Federal Reserve to end its aggressive bull run.
The Dow Jones Industrial Average jumped 332.04 points, or 1%, to 32,529.63. The Prime Index Added more than 400 points in the previous session. The S&P 500 rose 1.2% to 4,072.43, and the Nasdaq Composite added nearly 1.1% to 12,162.59. All major averages are in pace with a winning week as well as their best month of 2022.
After a brief dip after the GDP report, investors shrugged off fears that the Federal Reserve’s attempts to rein in soaring prices could push the economy into a recession. U.S. economic growth fell 0.9% in the second quarter, the Bureau of Economic Analysis reported Thursday. The Dow Jones estimate was for a 0.3% gain. First quarter GDP fell 1.6%.
“While this is certainly on the negative side of the estimates, keep in mind that a 1% decline is relatively small and supports the idea that any recessionary environment will be mild,” said Mike Loewengart, chief executive of the investment strategy for E-Trade, says GDP report.
“The Fed has made it clear that controlling inflation is its top priority, so it’s unlikely to change course due to another negative quarter, although today’s report may seem contradictory. with Powell’s comments on the recession yesterday,” he added. “The market rallied in July, so don’t be surprised to see the reality of the challenges ahead for investors.”
Many characterize a recession as having two consecutive quarters of negative economic growth. It’s more nuanced than that. The National Bureau of Economic Research, the official arbiter of recessions, takes several additional factors into account.
The moves follow a broad-based rally in the previous session after the Fed raised interest rates by 0.75 percentage points for the second straight time to fight inflation, and investors are betting on the fact that the central bank could stop the price spike without pushing the economy into a recession.
Max Wasserman, senior portfolio manager and founder of Miramar Capital, said Thursday’s rise was a continuation of that rally.
“The attitude is basically that the Fed is saying we’re close to the end, and the GDP number is telling people there’s no compelling reason for the Fed to hit us with 0.75 or 1 point. additional percentage,” he said. “The Fed may still be raising interest rates a bit, but we know they’re not going to continue to rise at the same level.”
Earnings season continues
Corporate earnings this week are also part of the optimism, Wasserman added, saying “profit margins are squeezed due to inflation…but the underlying business all looks pretty strong.” That, combined with the belief that the Fed is “essentially done with aggressive tightening,” gives investors reason to breathe a sigh of relief.
Traders had a deluge of second-quarter corporate earnings to digest on Thursday. Honeywell and Etsy both reported strong results that increased their shares by around 3.7% and 9.9%, respectively. Ford Motor climbed 6.1% after beating profit and revenue estimates and increasing its dividend.
On the other hand, shares of Meta Platforms fell 5.2% on disappointing quarterly numbers. Comcast shares fell 9.1% after reporting that it failed to add first-time broadband subscribers.
Nearly 49% of S&P 500 companies reported earnings. Of those, 71.14% exceeded estimates, according to FactSet data.
Investors are eagerly awaiting earnings from Apple, Amazon, Intel and Roku expected after the bell.
Separately, solar stocks soared after Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Joe Manchin, DW.V., said they reached an agreement on climate spending. Residential solar installers Sunrun and Sunnova jumped nearly 30% and 28%, respectively. SunPower gained about 18.2%. The Invesco Solar ETF gained 7.5%.
Spirit Airlines rose 5.6% after announcing its agreement to be acquired by JetBlue, following a months-long bidding war.
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC.
Read today’s market coverage in Spanish here.