By Yasin Ebrahim
Investing.com — The S&P 500 climbed Thursday after an unexpected decline in the U.S. economy stoked optimism that the Federal Reserve will be forced to reassess the pace of rate hikes.
The S&P 500 rose 1.2%, the Dow Jones Industrial Average gained 1%, or 327 points, the Nasdaq was up 1.1%.
The economy declined by 0.9% in the second quarter, the Commerce Department said in its first estimate on Thursday, confounding estimates for 0.5% increase.
It was the second quarter of contraction, pushing the economy into a technical recession, but economists were quick to downplay the severity of the data on expectations that growth will rebound when inflation starts to slow.
“Inflation was clearly the big culprit and the biggest drag on real GDP growth,” Jefferies said in a note. “If we sustain this type of nominal growth and inflation slows – as it appears to be doing at least so far in July – real GDP growth will accelerate meaningfully in Q3,” it added.
Treasury yields continued to price in the prospect of a less hawkish Fed. The U.S. two-year Treasury yield, which is sensitive to Fed rate hikes, was off its lows but fell below 3%.
“We expect the Fed to step down to 50bp in September, but see upside risks based on continued higher readings in inflation,” Morgan Stanley said in a note.
Tech stocks added to gains from a day earlier, but upside were kept in a check by a 6% slump in Meta Platforms (NASDAQ:META) following weaker-than-expected quarterly results and guidance pressured by a slowdown in advertising spending
The more than 50% in slump in Meta shares this year has caught the eye of bargain-hunting investors, but RBC said the social media giant has to stem market share loss from Tiktok and improve targeting “before the stock breaks out of its current valuation range.”
Etsy (NASDAQ:ETSY), however, reported quarterly earnings and revenue that topped Wall Street estimates despite the weaker economic backdrop that impacted engagement on its platform. Its shares jumped more 8%.
Chipstocks were up less than 1% amid pressure from Qualcomm (NASDAQ:QCOM) after the chipmaker’s guidance fell short of estimates as slowing handset sales growth will hamper chip demand.
Utilities led the sector gainers as renewable stocks soared as the climate deal – struck by US Senators Joe Manchin and Chuck Schumer on Thursday – is expected to ramp-up renewable energy development and growth.
Constellation Energy (NASDAQ:CEG), Plug Power Inc (NASDAQ:PLUG), and Sunrun Inc (NASDAQ:RUN) were up more than double digits.
In other news, JetBlue Airways (NASDAQ:JBLU) reached a deal to buy Spirit Airlines (NYSE:SAVE) for $3.8 billion after a months-long battle to acquire the low-cost carrier. The deal is, however, expected to face scrutiny from regulators.