Stocks surge as relief rally gains steam on upbeat earnings

U.S. stocks ended sharply higher Thursday after a comeback from recent selling gained momentum and placed markets on track to snap a 7-week losing streak.

The S&P 500 surged 2%, and the Dow Jones Industrial Average gained 518 points, or 1.6%. The Nasdaq Composite jumped 2.7% as the index attempts to claw its way out of bear market territory.

Strong retail earnings Thursday morning spurred markets early in the session, with Macy’s (M) rising as much as 18% in intraday trading after the retail giant raised its profit outlook in an upside surprise to investors weighing a slew of downward forecast revisions from peers. Shares of discount retailers Dollar Tree (DLTR) and Dollar General (DG) were also up more than 21% after both companies raised forecasts on Thursday.

Boosted by the string of better-than-expected results, the S&P 500 Consumer Discretionary Index rose as much as 5.6% in its best day since April 2020 as optimism on the health of the consumer at least temporarily returned.

“Today’s relief rally is a signal to investors that despite the inflation headwinds that many companies are facing, consumers still have the wherewithal to spend,” Allianz Investment Management Senior Investment Strategist Charley Ripley said in a note. “The overall economy is still underpinned by a very strong labor market and while challenges to margins have emerged for some big-box retailers, there are other signals in the economy that show consumers still have the ability to spend. Overall, markets were hovering near oversold territory and today’s rally was a result of walking back some of the recent recession fears.

LPL Financial Chief Equity Strategist Quincy Krosby also pointed out in a note that news of Broadcom’s (AVGO) deal to buy cloud computing VMware (VMW) for nearly $61 billion helped buoy investor sentiment, offering a “glimmer of the return of deals.”

“The purchase, indeed a large one, especially during a significant downdraft in the technology sector, suggests that value is being created as the market re-calibrates its valuation while the Federal Reserve raises interest rates and begins the taper of its balance sheet,” Krosby said.

The moves in markets Thursday build on a reprieve for equities, which closed higher Wednesday amid a streak of day-to day gyrations. In the first 100 trading days of the year, however, the S&P 500 was down 16.5%, marking its worst start to the year since 1970 and fourth worst start to a year in history, per data from LPL Financial.

Investors also digested a bevy of economic releases Thursday morning, including a revised estimate on U.S. GDP that showed economic activity fell at a 1.5% annualized rate in the first three months of 2022, upwardly revised from an initial estimate of 1.4%. Bloomberg economists had anticipated the second reading to come in at 1.3%. Meanwhile, applications for unemployment insurance ticked back down in the latest weekly data to 210,000 in the week ended May 21.

Last week, several retailers, including Walmart Inc. (WMT), slashed their outlooks and warned inflation was likely to weigh on profits.

Chip designer Nvidia Corp. (NVDA) was the latest in a growing list of companies reporting weaker second-quarter forecasts and alluding to economic constraints ahead. The company’s stock fell in extended trading Wednesday after Nvidia warned current-quarter revenue was likely to come in $500 million lower due to headwinds from Russia’s war in Ukraine and COVID lockdowns in China. Nvidia shares pared these losses early Thursday, rising 0.6% about a half hour into the trading session.

Software company Snowflake (SNOW) also cut its forecast late Wednesday, and shares of the company were down as much as 10% in early trading on Thursday.

Recent trading sessions have seen sharp drawdowns in some big-name stocks after earnings reports that affirmed investor worries about the impact of inflation on corporate margins. Earlier this week social media giant Snap Inc. (SNAP) tumbled 43% in its biggest-one day drop on record, spurring a sell-off of other digital ad-dependent stocks that dragged the Nasdaq down to its lowest close since November 2020.

Last week, the downswing occurred in retail after Walmart and Target (TGT) set off the recent trend of dramatic pullbacks in individual names following weaker earnings forecasts. According to data from FactSet, S&P 500 companies reporting results for the first quarter have seen the largest negative price reaction to positive earnings per share surprises since 2011.

“Whether it’s today or tomorrow, it does feel like we’re starting to digest what is a seemingly large amount of bad news,” Acorns Chief Investment Officer Seth Wunder told Yahoo Finance Live on Wednesday. “The key thing is to get data that eases some of the pressure off of the Federal Reserve.”

The pickup in disappointing guidance has kept Wall Street on edge for signs the central bank’s interest rate hiking plans will be effective in bringing prices back down to healthier levels. Minutes released Wednesday from the Fed’s May policy-setting meeting indicated the majority of officials were strongly committed to rate hikes of 50 basis points at each of the next two meetings in June and July. So far this year, policymakers bumped short-term borrowing costs by 50 basis points earlier this month and 25 basis points in April.

“Though market participants have feared this stance, it should be noted that the Fed has in excess of $100 billion is securities maturing on its balance sheet coming up, so the resulting asset purchases can help negate growth concerns this summer,” Comerica Wealth Management Chief Investment Officer John Lynch said in an emailed note. “It’s actually a perfect time for the Fed to raise aggressively and send a message to markets that they’re serious about inflation without sending growth into a tailspin.”

4:00 p.m. ET: Stocks jump as markets look to cap weeks-long losing streak

Here’s where stocks capped Thursday’s trading session:

  • S&P 500 (^GSPC): +79.21 (+1.99%) to 4,057.94

  • Dow (^DJI): +518.16 (+1.61%) to 32,638.44

  • Nasdaq (^IXIC): +305.91 (+2.68%) to 11,740.65

  • Crude (CL=F): +$3.72 (+3.37%) to $114.05 a barrel

  • Gold (GC=F): +$4.60 (+0.25%) to $1,850.90 per ounce

  • 10-year Treasury (^TNX): +0.7 bps to yield 2.7560%

12:56 p.m. ET: S&P 500, Dow, and Nasdaq rally amid string of positive earnings reports

Here were the main moves in markets as of 12:56 p.m. ET:

  • S&P 500 (^GSPC): +88.13 (+2.22%) to 4,066.86

  • Dow (^DJI): +588.88 (+1.83%) to 32,709.16

  • Nasdaq (^IXIC): +337.94 (+2.96%) to 11,772.68

  • Crude (CL=F): +$4.22 (+3.82%) to $114.55 a barrel

  • Gold (GC=F): -$2.40 (-0.13%) to $1,843.90 per ounce

  • 10-year Treasury (^TNX): +3.6 bps to yield 2.7850%

11:39 a.m. ET: Pending home sales fall to lowest since 2014

Pending sales of U.S. homes dropped in April for a sixth consecutive month to mark the widest decline for contract signings since 2018.

The National Association of Realtors’ Pending Home Sales Index fell 3.9% last month to 99.3, the lowest since 2014. The figure is down 9.1% from the same period a year ago. The index is a gauge of houses going under contract and typically leads existing home sales by one or two months.

Economists surveyed by Bloomberg had anticipated a 2.1% drop, according to data.

“Higher mortgage rates have broken the housing market’s fever,” Comerica Chief Economist Bill Adams said in commentary Thursday. “Early this year, listings were swamped with multiple offers across much of the country, but the average rate on a 30-year conventional mortgage is up by two full percentage points since late 2021, throwing many homebuyers’ plans into disarray.”

“Some of the buyers who had to go back to the drawing board as interest rates rose will adjust, draw up more modest budgets, and return to the market,” Adams noted. “This will help home sales to stabilize later this year, but with house prices and interest rates much higher than pre-pandemic, there will simply be fewer Americans who can afford homeownership.”

10:17 a.m. ET: Crypto under pressure as tech stocks gain

The start of Thursday’s trading session has been raucous, with the Nasdaq leading the charge up nearly 2% despite both Nvidia and Snowflake giving investors yet another downbeat forecast from former tech high-flyers last night.

Notably, however, crypto was not catching the same bid as the riskiest pockets of the market were rallying.

Bitcoin (BTC-USD) traded back below $29,000 at one point on Thursday morning, while Ethereum (ETH-USD) was down in excess of 8%, falling below $1,800 in morning trade on Thursday.

As we’re drafting this update, there’s a bit of a rebound happening in the crypto space, but this divergence between stocks and crypto — if it holds — is certainly something to watch.

—Myles Udland, senior markets editor at Yahoo Finance

9:34 a.m. ET: Stocks open mixed as market struggles to rebound from losses

Here were the main moves in markets during the opening bell on Thursday:

  • S&P 500 futures (ES=F): +15.75 (+0.40%) to 3,992.50

  • Dow futures (YM=F): +134.00 (+0.42%) to 32,210.00

  • Nasdaq futures (NQ=F): +20.00 (+17.00%) to 11,962.25

  • Crude (CL=F): +$0.88 (+0.80%) to $111.21

  • Gold (GC=F): -$2.60 (-0.14%) to $1,843.70 per ounce

  • 10-year Treasury (^TNX): -1.1 bps to yield 2.7490%

9:07 a.m. ET: US GDP contracted at slightly faster rate in the first quarter

U.S. gross domestic product fell at a 1.5% annualized rate in the first three months of 2022, according to a revised estimate out of Washington.

The nation’s GDP – the broadest measure of economic activity – was initially believed to logged a 1.4% contraction between January and March. The second reading came in higher than the revised contraction of 1.3% Bloomberg economists had anticipated.

In the fourth quarter, economy grew at a robust 6.9% pace. The slowdown comes amid lingering supply chain imbalances, inflation, and disruptions from war in Eastern Europe that weighed on growth.

8:58 a.m. ET: US jobless claims fall after climbing unexpectedly last week

Applications for unemployment insurance ticked back down in the latest weekly data, underscoring continued strength in the labor market despite higher inflation and worries of an economic slowdown.

The Labor Department’s latest weekly jobless claims report showed 210,000 claims were filed in the week ended May 21, coming in below the 215,000 economists surveyed by Bloomberg had expected. Last week, filings unexpectedly climbed to 218,000, the highest level since January.

Weekly claims continued to hover near a multi-decade low. However, several retailers, including Walmart Inc. (WMT), have recently slashed their outlooks and warned inflation was likely to weigh on profits, raising concerns among market participants that layoffs could be underway.

“Major retailers are reporting margin pressure and softer consumer demand as inflation erodes discretionary spending power and consumers redirect spending dollars from goods to services,” Comerica Chief Economist Bill Adams said in a recent note. “This will lead to slower job growth in the retail and e-commerce industries in the rest of 2022.”

“The stock market selloff could dampen business sentiment and make some businesses more cautious about hiring, especially businesses that are cash flow negative and rely on investors’ money to fund operations like many startups,” he added.

 

7:22 a.m. ET: Futures jump as the indexes claw back from sell-off

Here’s where stock futures were in pre-market trading Thursday:

  • S&P 500 futures (ES=F): +15.75 (+0.40%) to 3,992.50

  • Dow futures (YM=F): +134.00 (+0.42%) to 32,210.00

  • Nasdaq futures (NQ=F): +20.00 (+17.00%) to 11,962.25

  • Crude (CL=F): +$0.88 (+0.80%) to $111.21

  • Gold (GC=F): -$2.60 (-0.14%) to $1,843.70 per ounce

  • 10-year Treasury (^TNX): -1.1 bps to yield 2.7490%

A person enters the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 19, 2022. REUTERS/Andrew Kelly

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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