U.S. Stocks Give Back Ground After Early Move To The Upside

Stocks showed a strong move to the upside in early trading on Thursday but have given back ground over the course of the session. The major averages have pulled back well off their highs of the session, with the Dow falling into negative territory.

After surging as much as 1.7 percent early in the session, the Nasdaq is up 58.59 points or 0.4 percent at 14,185.87. The S&P 500 is also up 4.26 points or 0.1 percent at 4,571.01, but the Dow is down 32.98 points or 0.1 percent at 35,487.14.

The early strength on Wall Street partly reflected a positive reaction to upbeat earnings news, with Facebook parent Meta Platforms (META) leading the rally by the Nasdaq.

Shares of Meta have pulled back off their best levels but remain up by 5.3 percent after the company better than expected second quarter results and provided upbeat guidance.

Fast food giant McDonald’s (MCD) is also up by 2.0 percent after reporting second quarter results that beat analyst estimates on both the top and bottom lines.

Meanwhile, a steep drop by Honewell (HON) is weighing on the Dow, with the conglomerate plunging by 4.7 percent after reporting mixed second quarter results.

Stocks also initially benefitted from the release of a batch of upbeat U.S. economic data, including a Commerce Department showing an unexpected acceleration in the pace of economic growth in the second quarter.

The report said real gross domestic product surged by 2.4 percent in the second quarter after jumping by 2.0 percent in the first quarter. Economists had expected the pace of GDP growth to slow to 1.8 percent.

The Commerce Department said the unexpected acceleration in GDP growth primarily reflected an upturn in private inventory investment and an acceleration in nonresidential fixed investment.

The positive contributions were partly offset by a downturn in exports and decelerations in consumer spending, federal government spending, and state and local government spending.

However, the upbeat data has subsequently raised some concerns about the outlook for interest rates following Wednesday’s monetary policy by the Federal Reserve.

“The Fed will likely see the second quarter’s solid GDP growth as a little too strong,” said Bill Adams, Chief Economist for Comerica Bank. “The Fed wants the economy to grow in low gear for a time to open up a margin of slack capacity and calm price pressures.”

He added, “On balance, the second quarter’s better than expected GDP growth makes the Fed more likely to raise interest rates again in the second half of 2023, likely at the November first decision.”

The Labor Department also released a report unexpectedly showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended July 22nd.

The report said initial jobless claims slipped to 221,000, a decrease of 7,000 from the previous week’s unrevised level of 228,000. Economists had expected jobless claims to inch up to 235,000.

A separate report released by the Commerce Department showed new orders for U.S. manufactured durable goods soared by much more than expected in the month of June.

Sector News

Despite the pullback by the broader markets, semiconductor stocks continue to see substantial strength, with the Philadelphia Semiconductor Index spiking by 3.1 percent.

The rally by semiconductor stocks comes after South Korean electronics giant Samsung forecast a gradual global chip demand recovery.

Considerable strength also remains visible among computer hardware stocks, as reflected by the 2.0 percent jump by the NYSE Arca Computer Hardware Index.

On the other hand, gold stocks have moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 3.4 percent.

The sell-off by gold stocks comes amid a steep drop by the price of the precious metal, as gold for August delivery is tumbling $23.40 to $1,946.70 an ounce.

Airline stocks have also shown a substantial move to the downside, with the NYSE Arca Airline Index slumping by 2.8 percent to its lowest intraday level in over a month.

Shares of Southwest Airlines have plummeted by 9.7 percent despite reporting better than expected second quarter results, as traders worry about higher costs.

Interest rate-sensitive utilities and commercial real estate stocks have also come under pressure over the course of the session.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index climbed by 0.7 percent, while Hong Kong’s Hang Seng Index jumped by 1.4 percent.

The major European markets have also moved to the upside on the day. While the French CAC 40 Index spiked by 2.1 percent, the German DAX Index surged by 1.7 percent and the U.K.’s FTSE 100 Index edged up by 0.2 percent.

In the bond market, treasuries have moved sharply lower following the upbeat U.S. economic data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 11.9 basis points at 3.970 percent.

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