The Dow Jones Industrial Average was on track for a fifth straight gain Thursday after strong earnings from a handful of index components and better-than-expected U.S. third-quarter economic-growth data.
But the Nasdaq Composite index and its technology stocks were dogged by disappointing results for Meta Platforms Inc. as investors nervously awaited earnings from Apple Inc. and Amazon.com Inc.
How stocks are trading
The Dow Jones Industrial Average
rose 270 points, or 0.9%, to 32,115.
The S&P 500
was down 16 points, or 0.4%, at 3,815.
The Nasdaq Composite
sank, falling 161 points, or 1.5%, to 10,811.
On Wednesday, the Dow eked out a tiny gain to extend its winning streak to four sessions, while the S&P 500 fell 0.7% and the Nasdaq Composite dropped 2%. The Nasdaq Composite is up 6.3% from its 2022 closing low, which it hit on Oct. 14, but remains down 29.9% for the year to date.
What’s driving markets
Stocks rose after third-quarter GDP came in 2.6% higher on an annual basis and above the 2.3% gain economists expected. Other data showed durable-goods orders rising 0.4% in September. The latest weekly initial jobless-claims data showed a 3,000 gain, to 217,000.
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“The GDP release this morning was a goldilocks number for risk assets. Top line growth was solid, though consumption decelerated, it was still positive, highlighting resiliency in the major driver of the US economy,” said Cliff Hodge, chief investment officer for Cornerstone Wealth.
“GDP was also helped by a normalization of trade. The major bright spot however, was in prices. The GDP Price index slowed dramatically quarter over quarter and came in below expectations. This is another sign pointing to the likelihood that the worst of inflation may be behind us,” he said.
Just ahead of that data, the European Central Bank announced a widely expected interest-rate increase of 75 basis points, to 1.5%, as expected on Thursday. The dollar hovered around parity with the euro
However, investors were also paying attention to the latest gloomy set of earnings in the technology sector.
Big Tech was supposed to be the place that provided investors with some safety during an economic slowdown, but traders have learned that the high valuations these companies were afforded have made them very vulnerable to any indication of cyclical difficulties.
After Microsoft Corp.
and Alphabet Inc.
earnings disappointed late on Tuesday, Meta’s
attempted transformation to a metaverse platform was not well received by the market. Shares in the company formerly known as Facebook dropped 22.4% to just above $100.
Kevin Barry, chief investment officer at Summit Financial, thinks most of the decline in stock market throughout the summertime was attributable to higher rates driving down price earnings multiples (P/E), but as of yet earnings estimates hadn’t really started to come down.
“Even though the prices have come down because rates have gone up, there’s been a belief that the earnings would be unaffected,” Barry told MarketWatch on Thursday. “(But) the way any real secular bear market works is the bear comes and gobbles up each sector.”
“Realization has dawned that the might of big tech is not immune to the slowdown. Hopes that resilience would burn brightly through this U.S. earnings season have dimmed,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
However, Mark Newton, technical strategist at Fundstrat, saw the positive in the latest market action. “The important takeaway for all investors Wednesday focused on stock indices being able to rally sharply off the lows despite poor Tech earnings as rates followed through further to the downside,” he wrote in a note to clients.
“That’s an important point … it shows us all that markets are focusing more on interest rate changes (and should eventually focus on declining inflation) more than negative earnings,” Newton added.
The Federal Reserve is expected to raise its benchmark interest rate by 75 basis points to a range of 3.75% to 4% after its meeting next week, but recent soft U.S. economic data have built hopes that the central bank may decelerate its pace of tightening thereafter — a perception that has helped the S&P 500 index climb 7.1% through Wednesday off its 2022 low, set two weeks ago.
Companies in focus
Shares of Shopify Technology Inc.
rose 17.5% after the e-commerce company notched a smaller loss than anticipated and forecast that its operating-expense growth rate will fall sequentially in the current quarter.
shares rose 2.9% after the company added net new internet subscribers against what’s been a tough recent backdrop for growth. The 10,000 net subscriber gain in its residential broadband business and 5,000 net gain in business broadband came after Comcast posted a net of no new internet subscribers in aggregate during the second quarter.
shares rose 3.7% after the conglomerate housing aerospace, materials, and other businesses raised its full-year profit forecast and highlighted that its backlog gives “confidence” in the demand roadmap despite challenging economic conditions.
—Jamie Chisholm and Barbara Kollmeyer contributed to this report.