Wall Street Closes Higher After Shaking Off Early Slide, Tech Leads Rally Ahead of Big Tech Earnings

U.S. stocks climbed back on Thursday, October 29, 2020, after opening in the red. The S&P 500 had been down 0.3% in early trading, but it finished 1.2% higher, steadying a market that had just logged its worst drop in more than four months.

The index added 39.08 points to close at 3,310.11. That recovered less than half of what it lost a day earlier, when it tumbled 3.5% on worries that a worsening pandemic would again drag down the economy and corporate profits. The Dow Jones Industrial Average gained 139.16 points, or 0.5%, to 26,659.11, after swinging between a 229-point loss and a 371-point gain. The tech-heavy Nasdaq composite did best, rising 180.72 points, or 1.6%, to 11,185.59. Even so, the major indexes remain on track for weekly losses, including a second straight weekly decline for the S&P 500.

Technology led the rebound, with traders positioning ahead of quarterly results from Facebook, Amazon and Google's parent company. Willie Delwiche, an investment strategist at Baird, said leadership had swung back to the mega-cap names in anticipation of good earnings that evening. After the close, all three companies reported results that topped Wall Street's expectations. Expectations had been high, though, and Microsoft showed the risk on Wednesday: its stock slumped 5% even though its profit and revenue beat forecasts. Analysts have noted that stocks are getting less of a lift than usual from better-than-expected profits.

Overall, the earnings season has been better than feared. Earnings per share for S&P 500 companies are on track to fall about 13% from a year earlier, according to FactSet, much milder than the nearly 21% decline forecast at the start of October.

Economic data helped the mood. A government estimate released Thursday showed the economy grew at a record annualized rate of 33.1% from July through September, after shrinking at a 31.4% rate from April through June. Applications for unemployment benefits eased to 751,000 last week from 791,000 the week before, and came in better than economists had forecast. That figure is still extremely high compared with the period before COVID-19.

The worry is what comes next. Coronavirus cases are rising in the United States, raising fears that business restrictions could return. Even without the sweeping lockdowns of earlier this year, a worsening pandemic could keep customers away and cut into profits. Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the future still looks cloudy and that the virus will determine consumer behaviour. Meanwhile, Congress and the White House have not delivered more economic support, which economists and investors have sought since the last round of supplemental benefits for laid-off workers and other stimulus expired in the summer. House Speaker Nancy Pelosi sent Treasury Secretary Steven Mnuchin a letter on Thursday listing topics she is still awaiting answers on, including benefits for laid-off workers and coronavirus testing measures.

Caution showed up elsewhere too. A measure of investor fear in the U.S. stock market touched its highest level since June before receding, and oil prices kept falling on demand worries. In Europe, stocks initially rose but levelled off after the head of the European Central Bank said there is little doubt more stimulus will come in December. European markets were also recovering from a sharp slide Wednesday, when France and Germany announced new business restrictions to slow the virus. The yield on the 10-year Treasury rose to 0.83% from 0.79%.

What to watch now is whether Washington breaks its stalemate on new aid, and whether rising case counts bring renewed restrictions on business.