Dow Falls as Economy Shrinks, Tech Leads Nasdaq Higher
Stocks closed mixed Thursday after the U.S. economy contracted the most on record in the second quarter and Wall Street prepared for earnings from America’s largest and most powerful tech companies.
The U.S. economy backpedaled at an unprecedented pace in the second quarter as the coronavirus pandemic upended the U.S. economy by forcing businesses across the country to close their doors.
The Commerce Department reported Thursday that gross domestic product, which measures the output of the economy, dropped 9.5% between April and June. This equals an annual pace of 32.9%. Economists polled by FactSet had been expecting the economy to shrink by 34.6%.
“Second-quarter GDP dropped us in a deep hole, as expected, but estimates are for us climbing out in the third quarter,” said Robert Frick, corporate economist at Navy Federal Credit Union.
“We got a clue to just how quickly we’ll climb out in this morning’s unemployment claims, which rose again after declining for weeks. A healthy third-quarter rebound is not a foregone conclusion unless unemployment and Covid-19 are brought under control.”
The number of Americans filing for first-time unemployment benefits in the week ended July 24 rose to 1.434 million, higher than economists’ estimates.
The Dow Jones Industrial Average dropped 226 points, or 0.85%, to 26,313, and the S&P 500 eased 0.38%.
The Nasdaq Composite rose 0.43% as shares of Apple , Amazon.com, Alphabet and Facebook edged higher ahead of the release of their earnings after Thursday’s closing bell.
At one point during Thursday’s session the Dow industrials were off nearly 550 points, or a bit less than 2.1%.
Stocks closed broadly higher Wednesday after the Federal Reserve vowed to continue using all its tools to support the U.S. economy through the coronavirus pandemic.
The Federal Reserve left its benchmark interest rate near zero and said the “path of the economy will depend significantly on the course of the virus.”
The central bank added that economic activity and employment, after steep declines, “have picked up somewhat in recent months but remain well below their levels at the beginning of the year.”
The Fed reiterated that the coronavirus outbreak “poses considerable risks to the economic outlook over the medium term” and said rates would be held near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Fed Chairman Jerome Powell said the U.S. economy needed further support from Congress.
President Donald Trump in a tweet Thursday suggested that the presidential election in November should be delayed “until people can properly, securely and safely vote.” He claimed that mail-in voting during the pandemic would make for a fraudulent election. The president, however, doesn’t have the power to delay the vote.
Procter & Gamble posted stronger-than-expected fiscal-fourth-quarter earnings and issued a robust profit forecast for the coming fiscal year as fabric and home sales offset slumping revenue in skin and personal care.
United Parcel Service delivered adjusted per-share earnings in the second quarter more than double what analysts were forecasting, as the pandemic drove consumers and businesses to rely on the shipping giant for getting packages to their front doors.