U.S. Stocks Show Significant Downturn As Upbeat Data Raises Interest Rate Concerns

(RTTNews) - After showing a strong move to the upside early in the session, stocks showed a significant downturn over the course of the trading day on Thursday. The major averages pulled back well off their best levels of the day and into negative territory.

The tech-heavy Nasdaq fell 77.17 points or 0.6 percent to 14,050.11 after surging as much as 1.7 percent in early trading. The S&P 500 also slid 29.34 points or 0.6 percent to 4,537.41, while the Dow slumped 237.40 points or 0.7 percent to 35,282.72, snapping a 13-day winning streak.

The early strength on Wall Street partly reflected a positive reaction to upbeat earnings news, with Facebook parent Meta Platforms (META) leading the rally by the Nasdaq.

Shares of Meta pulled back off their best levels but still surged by 4.4 percent after the company better than expected second quarter results and provided upbeat guidance.

Fast food giant McDonald's (MCD) also jumped by 1.2 percent after reporting second quarter results that beat analyst estimates on both the top and bottom lines.

Meanwhile, a steep drop by Honewell (HON) weighed on the Dow, with the conglomerate plunging by 5.7 percent after reporting mixed second quarter results.

Stocks also initially benefitted from the release of a batch of upbeat U.S. economic data, including a Commerce Department showing an unexpected acceleration in the pace of economic growth in the second quarter.

The report said real gross domestic product surged by 2.4 percent in the second quarter after jumping by 2.0 percent in the first quarter. Economists had expected the pace of GDP growth to slow to 1.8 percent.

The Commerce Department said the unexpected acceleration in GDP growth primarily reflected an upturn in private inventory investment and an acceleration in nonresidential fixed investment.

The positive contributions were partly offset by a downturn in exports and decelerations in consumer spending, federal government spending, and state and local government spending.

However, the upbeat data subsequently raised some concerns about the outlook for interest rates following Wednesday's monetary policy decision by the Federal Reserve.

"The Fed will likely see the second quarter's solid GDP growth as a little too strong," said Bill Adams, Chief Economist for Comerica Bank. "The Fed wants the economy to grow in low gear for a time to open up a margin of slack capacity and calm price pressures."

He added, "On balance, the second quarter's better than expected GDP growth makes the Fed more likely to raise interest rates again in the second half of 2023, likely at the November first decision."

The Labor Department also released a report unexpectedly showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended July 22nd.

The report said initial jobless claims slipped to 221,000, a decrease of 7,000 from the previous week's unrevised level of 228,000. Economists had expected jobless claims to inch up to 235,000.

A separate report released by the Commerce Department showed new orders for U.S. manufactured durable goods soared by much more than expected in the month of June.

Sector News

Gold stocks have moved sharply lower over the course of the session, dragging the NYSE Arca Gold Bugs Index down by 4.1 percent.

The sell-off by gold stocks came amid a steep drop by the price of the precious metal, with gold for August delivery tumbling $24.40 to $1,945.70 an ounce.

Substantial weakness was also visible among airline stocks, resulting in a 3.4 percent nosedive by the NYSE Arca Airline Index. The index tumbled to its lowest closing level in over a month.

Shares of Southwest Airlines plummeted by 8.9 percent despite the airline reporting better than expected second quarter results, as traders worry about higher costs.

Interest rate-sensitive commercial real estate stocks also came under pressure as the day progressed, as reflected by the 2.2 percent slump by the Dow Jones U.S. Real Estate Index.

Steel, telecom, and utilities stocks also moved notably lower over the course of the session, while significant strength remained visible among semiconductor stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan's Nikkei 225 Index climbed by 0.7 percent, while Hong Kong's Hang Seng Index jumped by 1.4 percent.

The major European markets have also moved to the upside on the day. While the French CAC 40 Index spiked by 2.1 percent, the German DAX Index surged by 1.7 percent and the U.K.'s FTSE 100 Index edged up by 0.2 percent.

In the bond market, treasuries moved sharply lower following the upbeat U.S. economic data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, spiked 16.1 basis points to 4.012 percent.

Looking Ahead

Trading on Friday may be impacted by a reaction to a report on personal income and spending in the month of June, which includes a reading on inflation said to be preferred by the Fed.

Intel (INTC) and Ford (F) are also among the companies releasing their quarterly results after the close of today's trading, while Chevron (CVX) and Exxon Mobil (XOM) are among the companies due to report their results before the start of trading on Friday.