Wall Street Rebounds Sharply After Worst Drop in Four Months, Led by Tech Gains

By mid-afternoon Thursday, the S&P 500 was up 1.9%, a sharp turnaround for a market that had opened with a small loss of 0.3%. The day before, the index had fallen 3.5%, its worst drop in more than four months, as investors worried that a worsening pandemic would once again weigh on the economy and on corporate profits.

The Dow Jones Industrial Average was up 369 points, or 1.4%, at 26,891 as of 2:19 p.m. Eastern time. The Nasdaq composite gained 2.4%. Within the S&P 500, technology and communication stocks led the rally.

Two pieces of economic data helped steady traders. A government estimate released Thursday showed the economy grew at a record annual rate of 33.1% from July through September. That followed the April-to-June collapse, when output shrank at an annualized 31.4%. Separately, the number of U.S. workers applying for unemployment benefits eased last week to 751,000, down from 791,000 the week before and better than economists had forecast. It is still far higher than anything seen before COVID-19.

The cautionary notes were not far behind. Coronavirus cases are rising in the United States as well as Europe, raising fears that business restrictions could return. Even without the sweeping lockdowns of earlier this year, the concern is that a worsening outbreak 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 course of the virus will largely determine consumer behavior.

Washington has not helped. The supplemental benefits for laid-off workers and other stimulus Congress approved earlier in the year expired over the summer, and economists and investors have been asking for more ever since. Hopes of a deal soon are fading. On Thursday, House Speaker Nancy Pelosi sent Treasury Secretary Steven Mnuchin a letter listing the topics she is still waiting to hear back on in their negotiations, including benefits for laid-off workers and coronavirus testing measures.

Signs of lingering nerves were visible elsewhere. A measure of investor fear in the U.S. stock market touched its highest level since June before receding. Oil kept falling on worries about demand: benchmark U.S. crude dropped 3.3% to $36.15 a barrel, and Brent lost 3.1% to $38.43. The yield on the 10-year Treasury rose to 0.84% from 0.79% late Wednesday.

After the close, Apple, Amazon, Facebook and Google's parent company were scheduled to report summer profits. Their enormous market value gives them outsized sway over the S&P 500, and all four were up between 2.8% and 5.5% beforehand. Expectations are high, since investors have bid up these companies on the belief that work-from-home and other pandemic-accelerated trends will keep profits climbing. Microsoft showed the risk on Wednesday: its stock fell 5% even though its profit and revenue topped Wall Street's forecasts. Analysts have noted that stocks are getting a smaller lift than usual from better-than-expected earnings.

Still, the reporting season has been better than feared. According to FactSet, S&P 500 earnings per share are on track to fall about 13% from a year earlier, far milder than the nearly 21% decline analysts forecast at the start of October.

Abroad, European stocks first rose but flattened after the head of the European Central Bank said there is "little doubt" more stimulus will come in December. Germany's DAX gained 0.3%, while France's CAC 40 and London's FTSE 100 were unchanged. They were recovering from Wednesday's slide, when France and Germany announced new business restrictions. In Asia, Japan's Nikkei 225 slipped 0.4% after its central bank held policy steady but downgraded its outlook because of COVID-19 outbreaks. South Korea's Kospi fell 0.8%, Hong Kong's Hang Seng lost 0.5%, and Shanghai rose 0.1%.

What to watch next: the four tech earnings reports after the bell, and whether Washington can agree on new support as the virus spreads.