Dow soars more than 300 points as traders cheer stronger-than-forecast U.S. economic growth data

Maley: We're finally seeing the lagged effect of the Fed's policy tightening on the economy

The Dow Jones Industrial Average surged Thursday after new data showed the economy grew faster than expected and hinted at waning inflation.

The Dow climbed 343 points, or 1.1%, hanging on to a chunk of its early 559-point gain. The S&P 500 was down down 0.2% as it traded near the flatline for most of the day. The Nasdaq shed 01.1%, despite briefly trading positive earlier.

U.S. GDP increased increased at a 2.6% annualized pace for the period, against the Dow Jones estimate for 2.3% growth. The report, the first quarter of positive growth for 2022, eased investors’ concerns about a recession.

In addition to showing stronger than expected growth, the GDP report provided at least some good news on inflation. The chain-weighted price index, a cost-of-living measure that is adjusted to reflect changing consumer behavior, rose 4.1% for the quarter, well below the 5.3% estimate. Headline inflation rose 4.2%, down sharply from 7.3%, according to a gauge the Federal Reserve uses.

That offered hope for market observers looking for data indicating inflation was coming down, which could lead the Federal Reserve to ease rate hikes after the November meeting, said Cliff Hodge, chief investment officer at Cornerstone Wealth. Bond yields also pulled back following the release of the data.

“The GDP release this morning was a goldilocks number for risk assets,” said Hodge, who specifically noted the price index data. “This is another sign pointing to the likelihood that the worst of inflation may be behind us.”

The technology sector continued its recent woes – in turn weighing down the Nasdaq – as shares of the Facebook parent company plummeted 29.7% on a weak fourth-quarter forecast and disappointing third-quarter earnings Wednesday. The company also said it would lose even more money next year building out the metaverse. The report led to several analysts downgrading the stock.

Traders also pored over earnings reports from other companies, some of which performed better than tech has this week. McDonald’s shares traded up 3.4% after the fast-food giant beat expectations before the bell. But cigarette company Altria Group shed 1.2% after missing expectations on earnings per share and revenue.

“U.S. stocks are struggling for direction after a mixed bag of earnings was accompanied with economic data that supports the idea that the economy is weakening,” said Edward Moya, senior market analyst at OANDA. “It looks like the economy is still headed for a recession, but that might reinforce Fed pivot calls which still seems to be driving some inflows back into equities.”

Big tech earnings continue Thursday with results from Amazon and Apple.

Stocks are coming off a mixed session Wednesday, with the S&P 500 and Nasdaq Composite falling for the first time in four days on Wednesday, while the Dow ended the day marginally higher.

For the week, all the major averages remain in positive territory, with the Dow and S&P up more than 2% and Nasdaq roughly 1% higher. The Dow is on pace for its fourth positive week in a row since its five-week streak ended in November 2021.

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