Dow, small caps outperform on GDP data relief

NEW YORK: Wall Street’s main indexes rose on Thursday, with the Nasdaq and the S&P reversing early losses while the Dow and small-cap stocks outperformed, as stronger-than-expected GDP data provided some relief after the previous session’s tech mauling.

The small-cap Russell 2000 jumped 2% and was on track to fully recoup the losses from Wednesday’s broad Wall Street sell-off. The Dow also bounced back, as investors tried to determine if the recent flight to underperforming sectors was justified. Most megacap stocks were set to extend losses, with Microsoft, Nvidia and Meta Platforms down between 0.5% and 1.6%.

While Alphabet’s shares were down 0.5%, Tesla was up 3%. Lackluster earnings from the Google parent and the EV maker had pummeled the so-called “Magnificent Seven” group of tech stocks on Wednesday, prompting the Nasdaq and the S&P 500 to log their worst day since 2022. Data showed the US economy expanded 2.8% in the second quarter, versus an estimate of 2%, but inflation subsided, leaving expectations of a September Fed rate cut intact.

“We’ve been calling for a Goldilocks recovery, expecting the economy to hold up, and this report shows that the economy is actually quite strong. The Fed doesn’t necessarily need to kill growth; they’re really looking to just kill inflation,” said Brian Klimke, Cetera Investment Management’s chief market strategist.

Bets of a 25-basis-point cut by September stood at 85.8%, from around 78% prior to Thursday’s data, according to CME’s FedWatch Tool. Market participants are also pricing in at least two rate cuts by December this year, according to LSEG data.

Investors are now watching for the personal consumption expenditures price data on Friday, to confirm bets of an early start to interest-rate cuts after the recent trend of easing inflation and some weakness in the labor market.

Stocks has powered the markets to all-time highs this Wednesday’s sell-off these stocks might be over-stretched and in for more turbulence. “The companies that have done well with high interest rates and AI enthusiasm are starting to struggle. Other (lagging) indexes that are more diversified to benefit from interest rates coming down,” Klimke said.

Semiconductor stocks also broadly fell, led by an 11.6% tumble in Teradyne after the maker of chip-testing equipment forecast lower-than-expected third-quarter revenue.

At 12:03 p.m. ET, the Dow Jones Industrial Average was up 350.38 points, or 0.88%, at 40,204.25, the S&P 500 was up 33.15 points, or 0.61%, at 5,460.28, and the Nasdaq Composite was up 73.99 points, or 0.43%, at 17,416.40. Among results-driven moves, IBM jumped 5.7%, also boosting the blue-chip Dow, after beating estimates for second-quarter revenue and raising the annual growth forecast for its software business. Ford slumped 16.7% after the automaker’s second-quarter adjusted profit missed estimates by a wide margin, while American Airlines rose 5.5%, reversing premarket losses after cutting its annual profit forecast.

Edwards Lifesciences tumbled 28.8% after it missed second-quarter revenue estimates. Advancing issues outnumbered decliners by a 2.82-to-1 ratio on the NYSE, and by a 2.24-to-1 ratio on the Nasdaq. The S&P index recorded 39 new 52-week highs and eight new lows, while the Nasdaq recorded 133 new highs and 69 new lows.