Market Snapshot: U.S. stocks erase part of post-Fed rally after GDP report

What’s driving markets

Stocks wavered between modest losses and gains Thursday following the release of data of second-quarter GDP which showed that the U.S. economy had contracted by 0.9% between the beginning of April and end of June. The data marked a second consecutive quarter of contraction following a minus 1.6% print for the first quarter of 2022. Stocks have recently greeted signs of a slowing economy with gains, as investors bet that weak data might pressure the Fed to slow the pace of rate hikes.

While economists polled by The Wall Street Journal had forecast 0.3% growth, the Federal Reserve Bank of Atlanta had forecast a 1.2% contraction, according to an update it had released on Wednesday.

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

But Hugh Gimber, global market strategist at JPMorgan Asset Management, told MarketWatch in emailed comments that markets were likely unfazed by the data because the reading doesn’t really tell us anything new about the state of the U.S. economy.

“When is a recession not a recession? The box has been ticked for two quarters of negative GDP growth, and yet the US economy added 2.7 million jobs over the same period. While we may have to wait several months for the judgement from the National Bureau of Economic Research, it has been clear for some time that the US economy is losing momentum,” Gimber said.

Weekly initial jobless claims fell by 5,000 to 256,000 in the week ended July 23, according to the latest weekly reading on the number of Americans filing for unemployment benefits. However, the four-week average of new claims rose for the eight straight week.

The market’s turn higher doesn’t mean stocks’ optimistic take will necessarily hold, some analysts said. Mohannad Aama, a portfolio manager at Beam Capital, said the latest rally in markets appears to be driven by a misinterpretation of Federal Reserve Chairman Jerome Powell’s comments.

“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,” Aama said.

The surge in stocks that began Wednesday has been fueled in part by 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

Corporate earnings have also been an important driver of markets this week, which is expected to be the busiest week of such reports for the entire quarter. Meta Platforms
META,
-5.45%,
the parent company of Facebook and Instagram, released their quarterly report late Wednesday, showing worse than forecast profit and sales and guiding to revenue below estimates in the current quarter.

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

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

Nearly 49% of S&P 500 companies have reported earnings through Thursday’s open. Of those companies 71.5% have beaten estimates, FactSet data shows.

Companies in focus

• Ford Motor Company
  F,
  +6.03%
  shares were up 4% after the carmaker reported a more than 50% increase in total sales during the second quarter.

• Shares of Stanley Black & Decker Inc.
  SWK,
  -12.89%
  slid 12.1% after the tool maker’s second-quarter earnings fell far short of estimates.

• Pfizer Inc. 
  PFE,
  +0.16%
  shares dropped 1.1% even after the pharmaceutical giant reported big second-quarter profit and revenue beats driven primarily by sales of its COVID drugs.

Other markets

• West Texas Intermediate crude for September delivery
  CL.1,
  +0.85%

  CLU22,
  +0.85%
  fell 0.7% to $96.55.

• Gold 
  GC00,
  +1.91%

  GCQ22,
  +1.91%
  for October delivery gained $27.70, or 1.6%, to trade at $1,736.90 per ounce.

• The ICE U.S. Dollar Index was up 0.1% as the Japanese yen weakened following the latest Bank of Japan meeting.

• Bitcoin
  BTCUSD,
  +4.12%
  and ethereum prices
  ETHUSD,
  +7.77%
  surged Thursday, with bitcoin trading north of $23,000 and ethereum above $1,600.