Stocks bounced back Thursday after days of choppy trading ― with the Dow gaining more than 600 points ― as strong corporate earnings appeared to buoy investors despite a surprise contraction in GDP.
Tech stocks led the charge, with strong results from Facebook parent Meta Platforms and chipmaker Qualcomm pushing the Nasdaq index up 382.59 points, or 3.1%, to 12,871.53. The broader S&P 500 index bounced 103.54 points, or 2.5%, to close at 4,287.50. The Dow Jones industrial average surged 614.46, or 1.9%, to end the session at 33,916.39.
Markets have been volatile in recent sessions amid fears the Federal Reserve’s plan to push through higher interest rates could spark a broader economic slowdown. The central bank is expected to announce its second of seven rate hikes next Wednesday at the conclusion of a two-day meeting, and the prospect of an increase larger than 0.25% has put markets on edge for weeks.
The S&P 500 has fallen 7.5% in April and the Nasdaq about 12%. The Dow — which posted single-day drops near 1,000 points on Friday and 800 points on Tuesday — is down 3.9%.
First-quarter earnings have been front of mind for investors given the economic head winds — surging inflation, the rise of the omicron subvariant and the Russian invasion of Ukraine — that defined the first three months of the year.
But results have been largely positive: Among the 202 companies that have reported earnings as of Thursday afternoon, about two-thirds have beaten Wall Street’s expectations, according to the financial research firm Fundstrat. The average margin was 7%.
“With markets oversold, investors are jumping on good news with some of these earnings and taking advantage of a market that’s having its worst month since 2020,” said Wayne Wicker of MissionSquare Retirement.
Meta shares swelled 17.5% even after missing first quarter revenue targets. But it reported a 4% increase in daily active users on Facebook, bringing its count to 1.96 billion.
Qualcomm was trading up 9.8% after reporting record quarterly revenue driven by strong demand for its chips amid tight supplies during the pandemic.
PayPal stock jumped 11.5% Thursday. The payments company has been in an awkward position amid rising inflation, the end of government stimulus, and the impending departure of a long-time executive, one analyst told CNN. Those factors combined to push its stock down more than 50% year to date, even after Thursday’s rise.
These companies have recorded sharp declines since the beginning of the year, Wicker said, and now they are experiencing a sort of “relief rally.”
Twitter gained 1.1% after the company reported mixed financial results, just days after its board agreed sell the platform to Elon Musk in a $44 billion deal. The company reported a 6.4% bump in daily active users compared with a year ago. But the company missed analyst forecasts on revenue, according to Refinitiv data cited by CNBC, something the company attributed to “head winds associated with the war in Ukraine.”
Tesla, meanwhile, was down around 1% amid worries Musk might sell a good chunk of his car company’s shares to finance his Twitter purchase. Tesla shares have fallen nearly 21% this month.
Meanwhile, the U.S. economy contracted 1.4% in the first quarter, the weakest showing in nearly two years ago, according to data released Thursday by the Bureau of Economic Analysis. The job market remained strong despite the slowdown, as the Labor Department counted just 180,000 new unemployment claims, reflecting a decrease of 5,000 over the previous week’s revised level.
Analysts said the GDP numbers would have a largely neutral effect on the stock market, despite the decline in economic activity. Consumer spending remains strong despite rising prices, notes Matthew Sherwood of the Economist Intelligence Unit. And the economic decline is not significant enough to push the Fed off its plan to raise interest rates, which is the biggest factor driving the recent market declines, they noted.
“We’ve been positioning our portfolios in a more cautious manner over the past 5-6 months in anticipation of the inflation threat turning into a one-way street toward much higher short-term interest rates, but there is still time for the Fed to get inflation under control and prevent stagflation from taking hold, which is an outcome that no one wants,” wrote Chris Zaccarelli of Independent Advisor Alliance.