US stocks rallied for a second day in a row on Thursday, even after the latest GDP showed a straight contraction, as investors bet the economic downturn would soon prompt the Federal Reserve to end its aggressive hiking campaign .
The Dow Jones Industrial Average rose 332.04 points, or 1%, to 32,529.63. Added blue-chip index more than 400 points in the previous session. The S&P 500 rose 1.2% to 4,072.43, and the Nasdaq Composite rose nearly 1.1% to 12,162.59. All the major averages are poised for 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 tame rising prices would push the economy into recession. US economic growth fell 0.9% in the second quarter, the Bureau of Economic Analysis reported Thursday. The Dow Jones estimate was for a gain of 0.3%. GDP in the first quarter fell by 1.6%.
“While certainly on the negative side of estimates, keep in mind that a 1% decline is relatively small and supports the idea that any recessionary environment will be mild,” Mike Loewengart, chief strategy officer of E-Trade investment. he said of the GDP report.
“The Fed has been clear that controlling inflation is its top priority, so it is unlikely to change course due to another negative quarter, although today’s report may seem at odds with Powell’s comments on the recession yesterday,” he added. “The market has been recovering 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 negative quarters of economic growth. It’s more nuanced than that. The National Bureau of Economic Research, the official arbiter of recessions, considers several additional factors.
The moves follow a broad rally in the previous session after the Fed raised interest rates by 0.75 percentage points for the second time in a row to fight inflation, and investors bet on whether the bank central bank could stop rising prices without pushing the economy inward. a recession
Max Wasserman, senior portfolio manager and founder of Miramar Capital, said Thursday’s increase was a continuation of that rally.
“The attitude is basically that the Fed is saying we’re near the bottom and the GDP number is telling people there’s no compelling reason for the Fed to hit us another 0.75 or 1 percentage point,” he said. “The Fed may still be raising interest rates a little bit, but we know they’re not going to keep going up at the same level.”
Earnings season continues
The company’s earnings this week are also part of the optimism, Wasserman added, saying “profit margins are shrinking due to inflation … but the underlying businesses appear to be quite strong.” That, combined with the belief that the Fed is “basically done with aggressive tightening,” is giving investors reason to breathe a sigh of relief.
Traders had a deluge of second-quarter company earnings to digest on Thursday. Honeywell and Etsy reported strong results that sent their shares up about 3.7% and 9.9%, respectively. Ford Motor rose 6.1% after beating profit and revenue estimates and raising its dividend.
Meanwhile, Meta Platforms shares fell 5.2% on disappointing quarterly numbers. Comcast shares fell 9.1% after reporting that it failed to add broadband subscribers for the first time.
Nearly 49% of S&P 500 companies have reported earnings. Of those, 71.14% beat estimates, FactSet data show.
Investors await expected results from Apple, Amazon, Intel and Roku after the bell.
In other news, solar stocks soared after Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.V., said they have reached an agreement on climate spending. Residential solar installers Sunrun and Sunnova rose nearly 30% and 28%, respectively. SunPower gained 18.2%. The Invesco Solar ETF added 7.5%.
Spirit Airlines rose 5.6% after announcing it had agreed to be acquired by JetBlue, following a months-long bidding war.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
Read today’s market coverage in Spanish here.