US stocks rallied for a second day on Thursday, with all three major indexes ending up more than 1% as data showed a second consecutive quarterly contraction in the economy fueling investor speculation that the Federal Reserve may not have perhaps there is no need to be as aggressive with interest rate hikes as some had feared.
The yield on benchmark 10-year Treasuries fell following the data, while utilities and real estate – both of which tend to rise when yields fall – were the best performing sectors on the S&P 500 a day.
Falling yields may suggest “markets think the Fed will have to pivot and lower rates at some point, perhaps in the next 12 months,” said Mona Mahajan, senior investment strategist at Edward Jones.
“This implies that the pace of tightening will become more gradual in the future.”
Additionally, second-quarter earnings growth forecasts rose this week as more S&P 500 companies reported results and beat analysts’ expectations. Among them, shares of Ford Motor Co jumped 6.1% after reporting better-than-expected quarterly net profit.
After the closing bell, shares of Amazon.com jumped more than 12% as the online retailer reported quarterly sales above Wall Street estimates. Amazon.com ended the regular session up 1.1%. Apple shares rose more than 3% after hours following the company’s quarterly report and upbeat forecast, and S&P 500 e-mini futures rose 2% late.
Early in the day, the US Commerce Department said the US economy unexpectedly contracted in the second quarter – the second consecutive quarterly decline in gross domestic product (GDP) reported by the government.
The news raised the possibility that the economy was on the verge of a recession, and some investors said it could deter the Fed from continuing to aggressively raise rates as it battles high inflation.
The Dow Jones Industrial Average rose 332.04 points, or 1.03%, to 32,529.63, the S&P 500 gained 48.82 points, or 1.21%, to 4,072.43 and the Nasdaq Composite added 130.17 points, or 1.08%, to 12,162.59.
The Nasdaq posted its biggest two-day percentage gain since May 27.
Stocks rebounded in the previous session when the Fed raised rates and comments from Fed Chairman Jerome Powell eased some concerns about the pace of rate hikes.
“More investors are coming in now because they think at least there won’t be any big surprises for the rest of the summer,” when it comes to rates, said Alan Lancz, chairman of Alan B. Lancz & Associates Inc, an investment advisory firm based in Toledo, Ohio.
The Fed on Wednesday raised the overnight rate by three-quarters of a percentage point. The move follows a 75 basis point hike last month and more modest moves in May and March, part of an effort by the US central bank to rein in soaring inflation.
Investors have expressed concern that inflation and the Fed’s aggressive rate hikes could at some point tip the economy into a recession.
Among the falling stocks, Facebook and Instagram’s parent company, Meta Platforms Inc, fell 5.2% after posting its first-ever quarterly drop in revenue.
Volume on U.S. exchanges was 11.21 billion shares, compared to an average of 10.86 billion shares for the full session over the past 20 trading days.
Advancing issues outnumbered declining ones on the NYSE by a ratio of 3.56 to 1; on the Nasdaq, a ratio of 1.66 to 1 favored advancers.
The S&P 500 posted three new 52-week highs and 31 new lows; the Nasdaq Composite recorded 67 new highs and 97 new lows.