Stocks finished higher Thursday, following on from the strongest single-session gain for tech stocks in more than two years, as investors sift through details of the Federal Reserve's back-to-back jumbo rate hikes and brace for a key reading of second quarter growth prior to the start of trading.
Commerce Department data showed the economy contracted by 0.9% over the second quarter, following the 1.6% slump over the first three months of the year, as the fastest inflation in four decades blunted growth prospects.
The Atlanta Fed's GDPNow tracker suggests the economy is shrinking at a 1.2% clip as we enter the third quarter, while analysts had looked for a modest 0.5% advance over the three months ending in June.
Fed Chairman Jerome Powell repeated his commitment to fighting those inflation pressures when he explained the rationale for the central bank's second consecutive 75 basis point rate hike -- past of the most aggressive Fed tightening since the early 1980s -- but sounded caution on the state of the broader economy and appeared to leave the door open for smaller hikes, or even a pause in rate increases, over the final months of the year.
The CME Group's FedWatch now indicates a 71% chance of a 50 basis point rate hike in September, and near 60% chance of just a 25 basis point move at the following meeting in November.
"While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then," Powell told reporters in Washington. "We will continue to make our decisions meeting by meeting, and communicate our thinking as clearly as possible."
The comments, alongside a more muted assessment of the broader growth picture, triggered a late-session rally on Wall Street that lifted the Dow more than 400 points by the close of the session and was accompanied by the best single-day gain for the Nasdaq in since April of 2020.
The rally extended into Europe, as well, where stocks were also given a boost from a series of regional blue-chip earnings, including Shell, Volkswagen and Nestle, that included solid near-term profit forecasts.
Here in the U.S., investors will run through another busy slate of pre-market earnings as well, including updates from Pfizer (PFE), Merck (MRK), Comcast (CMCSA), Mastercard (MA) and Honeywell (HON), with Apple's (AAPL) crucial June quarter report, as well as that from Amazon (AMZN), are slated for after the close of trading.
Most people, investors included, consider two consecutive quarters of negative GDP as the common definition of recession. Historically, however, the National Bureau of Economic Research has been the final arbiter of recession, which it defines as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months”.
Benchmark Treasury bond yields continued to ease in New York trading following the GDP data, while also recalibrating for the dovish tone of the Fed rate decision, with 2-year notes falling to 2.87% and 10-years slumping to 2.671%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.21% lower at 106.20, well off the 20-year high of 109.15 it reached earlier this month.
On Wall Street, the S&P 500 finished up 1.21%, while the Dow Jones Industrial Average gained 332 points, or 1.03%, to 32,529. The tech-focused Nasdaq gained 1.08%.
Meta Platforms (META) shares slumped 5.2% after the social media group posted its first-every quarterly revenue decline and indicated competitive pressures and slump ad sales would likely keep growth muted over the coming months.
Ford Motor (F) shares, meanwhile, moved 6.1% higher after the carmaker reported stronger-than-expected second quarter earnings, while confirming its full-year profit guidance, even as it cautioned on surging costs.
Spirit Airlines (SAVE) jumped 5.64% after shareholders voted against the discount carrier's tie-up with Frontier Airlines (ULCC), paving the way for a $3.8 billion takeover by JetBlue (JBLU).
Honeywell gained 3.7% after better-than-expected second quarter earnings and an improved full-year sales forecast, thanks in part to impressive gain in the industrial group's commercial aerospace division.
Pfizer lost 1.51% despite stronger-than-expected second quarter earnings, which included record revenues amid improving sales of its Covid treatments.
Apple shares edged 0.4% higher ahead of the tech giant's third quarter earnings after the closing bell, with investors focused on the group's near-term revenue forecasts and the impact of chip shortages and production delays linked to China's spring Covid lockdowns.
