The Nasdaq Composite turned positive in midday trading Thursday as shares of major tech companies rose ahead of their earnings releases. The broader market remained under pressure, however, as investors digested a record-setting drop in U.S. economic activity.
The tech-heavy index rose 0.3%. The Dow Jones Industrial Average was down 228 points, or 0.9%. The S&P 500 dipped 0.5%.
Apple, Amazon, Alphabet and Facebook, representing nearly $5 trillion in market capitalization, are all set to report after the bell. All four stocks rose slightly.
The Big Tech reports come after each stock has posted massive year-to-date gains. Facebook and Alphabet are both up more than 13% in 2020. Amazon has surged 64.2% in that time and Apple is up 29.5% this year.
Record GDP drop, jobless claims rise again
Data from the U.S. government showed gross domestic product plunged by a record 32.9% in the second quarter. The number was not as bad as feared, however, as economists surveyed by Dow Jones had expected a 34.7% decline.
Meanwhile, U.S. weekly jobless claims came in at 1.434 million, roughly in line with estimates. However, continuing claims, or those who have been collecting for at least two weeks, totaled 17.018 million, up from about 16 million last week.
“The stock market has to look forward and most economic data looks backwards,” said David Bahnsen, chief investment officer of The Bahnsen Group. “Investors should be prepared for a choppy process of data digestion, but not be surprised that the market feels the future is better than the present and that unprecedented stimulus and liquidity exist to drive valuations.”
Thursday’s data sent the benchmark 10-year Treasury yield lower to around 0.5%, putting pressure on bank stocks. JPMorgan Chase, Goldman Sachs and Bank of America all fell more than 2.5%. Citigroup dropped 4.5%.
“What you’re seeing in the data and in the market reaction is the roll-off of the extra unemployment insurance is a pretty big deal,” said Tom Hainlin global investment strategist at Ascent Private Capital Management. “There’s a lot of expectation for Congress to come through.”
“That’s why those recovery sectors , energy, financials and materials, are the ones that are off today,” he said.
The S&P 500 materials sector dropped more than 1% while energy shares slid 4%. The financials sector fell 2.2%.
Thursday moves follow a session that saw major averages posting solid gains after the Federal Reserve kept the overnight U.S. rate in a range between 0% and 0.25%. The central bank noted that while the economy has recovered slightly, activity and employment remain “well below their levels at the beginning of the year.” Fed Chairman Jerome Powell added the central bank will keep an accommodative stance until the economy has “weathered” the effects of the coronavirus pandemic.
“Powell made it loud and clear that our economic recovery is dependent on how we progress in fighting the pandemic,” said Mike Loewengart, managing director of investment strategy at E-Trade. “Although investors may not be deterred by the surge in virus cases, the stock market is less of a focus for the Fed than the economy—and while the two are related, they are far from the same.”
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