Wall Street’s main indexes rose on Thursday, with the Dow soaring nearly 500 points and the Nasdaq and the S&P reversing early losses, as stronger-than-expected GDP data provided some relief after the previous session’s tech mauling.
In midday trading he Dow Jones Industrial Average jumped 466 points, or 1.2%, to 40, 320, the S&P 500 gained 0.9%, and the Nasdaq climbed 0.9%.
The small-cap Russell 2000 jumped 2% and was on track to fully recoup the losses from Wednesday’s broad Wall Street sell-off.
Most megacap stocks were set to extend losses, with Microsoft, Nvidia and Meta Platforms down between 0.5% and 1.6%.
While Alphabet’s shares were down 0.5%, Tesla was up 3%.
Lackluster earnings from the Google parent and the EV maker had pummeled the so-called “Magnificent Seven” group of tech stocks on Wednesday, prompting the Nasdaq and the S&P 500 to log their worst day since 2022.
Data showed the US economy expanded 2.8% in the second quarter, versus an estimate of 2%, but inflation subsided, leaving expectations of a September Fed rate cut intact.
“We’ve been calling for a Goldilocks recovery, expecting the economy to hold up, and this report shows that the economy is actually quite strong. The Fed doesn’t necessarily need to kill growth; they’re really looking to just kill inflation,” said Brian Klimke, Cetera Investment Management’s chief market strategist.
Bets of a 25-basis-point cut by September stood at 85.8%, from around 78% prior to Thursday’s data, according to CME’s FedWatch Tool.
Market participants are also pricing in at least two rate cuts by December this year, according to LSEG data.
Investors are now watching for the personal consumption expenditures price data on Friday, to confirm bets of an early start to interest-rate cuts after the recent trend of easing inflation and some weakness in the labor market.
While the group of heavyweight stocks has powered the markets to all-time highs this year, Wednesday’s sell-off added weight to fears that these stocks might be over-stretched and in for more turbulence.
“The companies that have done well with high interest rates and AI enthusiasm are starting to struggle. Other (lagging) indexes that are more diversified to benefit from interest rates coming down,” Klimke said.
Semiconductor stocks also broadly fell, led by an 11.6% tumble in Teradyne after the maker of chip-testing equipment forecast lower-than-expected third-quarter revenue.
Among results-driven moves, IBM jumped 5.7%, also boosting the blue-chip Dow, after beating estimates for second-quarter revenue and raising the annual growth forecast for its software business.
Ford slumped 16.7% after the automaker’s second-quarter adjusted profit missed estimates by a wide margin, while American Airlinesrose 5.5%, reversing premarket losses after cutting its annual profit forecast.