Stocks are closing higher on Wall Street Thursday as investors weighed fresh data showing that the U.S. economy shrank for a second consecutive quarter in the Spring. The data heightened fears that the U.S. economy is already in or heading for a recession, but also stoked optimism that the Fed could temper its aggressive rate rises.
The S&P 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite each remain on track to end the week higher. Meta Platforms shares sank after the social media giant said that for the first time ever, its revenue fell last quarter.
The indexes fell in the early going after the Commerce Department reported that the economy shrank from April through June, contracting at a 0.9% annual pace. The latest decline in the gross domestic product — the broadest gauge of the economy — followed a 1.6% annual drop from January through March. Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession.
The GDP report for last quarter pointed to weakness across the economy. Consumer spending slowed as Americans bought fewer goods. Business investment fell. Inventories tumbled as businesses slowed their restocking of shelves, shedding 2 percentage points from GDP.
The Federal Reserve has made slowing U.S. economic growth in order to tame the highest inflation in 40 years its goal by raising interest rates, most recently on Wednesday. The latest GDP report, along with other recent weak data, could be giving some investors confidence that the central bank will not have to be as aggressive about hiking rates in the months to come.
“Sometimes bad news is good news,” said Megan Horneman, chief investment officer at Verdence Capital Advisors.
The Fed raised its key short-term interest rate by 0.75 percentage points on Wednesday, bringing it to the highest level since 2018. The move sparked a broad market rally led by technology stocks that helped give the Nasdaq its biggest gain in over two years. The major indexes are now all on pace for a weekly gain, extending Wall Street’s strong July rally.
Technology stocks and retailers, restaurant chains and other companies that rely on direct consumer spending helped lift the S&P 500 Thursday. Microsoft rose 2.8%, Target gained 3.2% and McDonald's was 1.4% higher.
Communication services stocks were the only laggards. Meta Platforms fell 7% after the social media giant said its revenue fell last quarter for the first time ever, dragged down by a drop in ad spending.
In a busy week of corporate earnings reports investors have focused on what companies are saying about inflation and the impact rising interest rates are having on their business and customers.
Markets were spooked Monday after retail giant Walmart warned that its profits are being hurt by rising prices for food and gas, which are forcing shoppers to cut back on more profitable discretionary items such as clothing.
Stanley Black & Decker slumped 14.4% Thursday after the tool maker's second-quarter results fell short of Wall Street's estimates. The company noted that demand significantly slowed in May and June.
Oshkosh fell 6.3% after the company reported weaker-than-expected quarterly results and lowered its 2022 profit guidance, citing lingering supply chain disruptions and inflation.
Meanwhile, Spirit Airlines shares rose 4.1% after JetBlue said it agreed to buy the budget airline for $3.8 billion to create the nation’s fifth largest airline. The agreement, which still requires regulator and shareholder approval, comes a day after Spirit’s attempt to merge with Frontier Airlines fell apart.
Bond yields were broadly lower. The two-year Treasury yield, which tends to move with expectations for the Fed, fell to 2.88% from 2.98% late Wednesday. The 10-year yield, which influences mortgage rates, fell to 2.69% from 2.74%.