U.S. stocks pare gains, Dow briefly turns red, as investors digest GDP report, earnings

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U.S. stocks pared their early gains on Thursday, with the Dow wavering between gains and losses, as stocks benefited from optimism over Tesla’s earnings results and a stronger-than-expected GDP report.

How are stocks trading

  • The S&P 500 rose by 12 points, or 0.3%, to 4,030.
  • Dow Jones Industrial Average was flat at 33,736.
  • Nasdaq Composite advanced 69 points, or 0.6%, to 11,384.

The Dow Jones Industrial Average finished Wednesday’s session up 10 points after falling roughly 400 points at the lows earlier in the session. Still, all three averages remain higher for the week, with the tech-heavy Nasdaq on track for its fourth straight weekly advance, what would be its longest such streak since August.

What’s driving markets

Stocks are trading higher, but have pared their early gains, following a flurry of economic data that included a report on fourth quarter U.S. GDP which came in slightly stronger than economists had expected.

Investors were also focused on the latest batch of corporate earnings which helped to brighten the outlook following disappointing results and guidance from Microsoft Corp. earlier in the week.

The economy grew at a robust 2.9% annual pace to close out 2022, according to the first estimate of fourth quarter GDP, released Thursday morning. Investors heralded it as the latest sign that the U.S. economy is holding up well despite the Federal Reserve’s aggressive interest-rate hikes.

“Thursday’s GDP report suggests that the economy is relatively strong even in the face of aggressive measures by the Federal Reserve to calm inflation,” said Carol Schleif, chief investment officer at BMO Family Office, in emailed commentary.

Markets cheered the latest data as evidence that the U.S. economy might achieve a soft landing, rather than slumping into a recession, as signs of waning inflation might spur further aggressive interest-rate hikes by the Federal Reserve.

“The market was bracing for the data to be a little bit worse,” said Christopher Zook, chairman and chief investment officer of CAZ Investments.

Others pointed to signs of weakness in the details of the data. Economists from Jefferies pointed out in a note to clients that the growth in domestic demand was just 0.8%, less than the prior quarter, after removing the contribution from trade and inventories.

“Bottom line, despite the acceleration in top line growth in the second half, demand is actually cooling under the surface,” said Jefferies Economists Aneta Markowska and Thomas Simons in a note to clients.

While the data made headlines, corporate earnings reports released late Wednesday and before the bell on Thursday remained the market’s primary concern, Zook said. To wit, investors celebrated a surge in Tesla Inc. TSLA shares after the firm released well-received results that showed record quarterly profits.

The labor market is also showing signs of strength despite more reports of layoffs in the tech, finance and media spaces, as the number of Americans filing for unemployment benefits fell to their lowest level since April. Investors also digested durable goods orders for December.

Data from the Commerce Department showed U.S. new home sales rose for the third month in December, climbing 2.3% to a seasonally-adjusted rate of 616,000, from a revised 602,000 in the prior month.

As for the Federal Reserve, the central bank is expected to slow the pace of interest rate hikes when it next week raises its policy rate by 25 basis points to a range of 4.5% to 4.75%.

More corporate earnings are expected Thursday, with results due out from McDonald’s Intel Comcast Visa Dow Whirl pool Western Digital and Northrop Grumman

Corporate profits appear to have contracted in the fourth quarter with the exception of the energy space, where oil and gas companies are still enjoying a surge in profits driven by higher crude oil and natural gas prices.

In aggregate, companies are reporting earnings 2.4% above expectations, according to data from Refinitiv. Earnings typically outperform Wall Street’s generally conservative forecasts, however, and the outperformance seen so far this earnings season is smaller than the long-term historical average.

Companies in focus

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