Stock Market

U.S. stocks erase part of post-Fed rally after GDP report – News Opener

U.S. stocks turned lower Thursday, erasing some of Wednesday’s spectacular post-Fed rally.

How stocks are trading
  • The Dow Jones Industrial Average
    DJIA,
    +0.69%

    slumped 103 points, or 0.3%, to 32,092.

  • The S&P 500 index
    SPX,
    +0.69%

    was off 16 points, or 0.4%, at 4,007.

  • The Nasdaq Composite
    COMP,
    +0.44%

    slumped 104 points, or 0.9%, to 11,925.

On Wednesday, the Dow Jones Industrial Average rose 436 points, or 1.37%, to 32198, the S&P 500 increased 103 points, or 2.62%, to 4024, and the Nasdaq Composite gained 470 points, or 4.06%, to 12032. For the Nasdaq, it was the best one-day percentage gain since April 6, 2020.

What’s driving markets

Stocks traded lower after data on second-quarter GDP showed the U.S. economy contracted by 0.9% between the beginning of April and end of June, following a 1.6% contraction during the first quarter.

See: U.S. economy shrinks in the second quarter, GDP shows, and invites talk of recession

After initially rallying on the news, stocks eventually slumped after the open. Some economists and market strategists argued that the data wasn’t bad enough to pressure the Federal Reserve to rethink its rate-hike plans.

U.S. economists at Capital Economics told clients in a commentary piece that the data actually wasn’t as bad as it seemed on the surface, since the contraction during the second quarter was once again driven by high inventories, as American companies continue to struggle with large stockpiles of goods acquired during the period when the economy was just reopening after the initial COVID-19 lockdowns.

“The 0.9% annualized fall in GDP in the second quarter is disappointing but doesn’t mean the economy is in recession. The decline was partly due to a huge drag from inventories, while most other coincident indicators, particularly employment, show continued expansion,” wrote Andrew Hunter, the senior U.S. economist at Capital Economics.

It’s also possible that investors could be reconsidering their initial interpretation of Fed Chairman Jerome Powell’s comments from Wednesday’s press conference.

“Yesterday was an overreaction and a misreading of what Jerome Powell was trying to communicate. The lack of forward guidance doesn’t mean we’re nearing a pivot, it just means that there is more uncertainty ahead,” said Mohannad Aama, a portfolio manager at Beam Capital

Wednesday’s surge in stock prices was fueled by Fed Chair Jerome Powell saying that interest rates are now in the range of neutral territory and that the pace of hikes may slow, though he left another 75 basis point hike in September as a possibility.

See: Was Fed’s Powell dovish or not? 4 key takeaways from Wednesday’s press conference

When it comes to corporate earnings, Meta Platforms
META,
-5.34%
,
the parent company of Facebook and Instagram, late Wednesday reported worse than forecast profit and sales and guided to revenue below estimates in the current quarter.

See: Facebook revenue declines for first time, and Meta’s downfall is expected to get worse

Earnings are due from Apple AAPL, Amazon AMZN and Mastercard MA after Thursday’s market close.

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