Wall Street Recovers Early Losses as Tech Rally Lifts S&P 500 1.2% Ahead of Big Tech Earnings

Wall Street opened Thursday in the red and ended it in the green. The S&P 500 was down 0.3% in the early going, then climbed to finish up 1.2%, a steadying day after Wednesday's 3.5% tumble, the market's worst drop in more than four months. That slide came on worries that the worsening pandemic would again drag down the economy and corporate profits.

The index rose 39.08 points to 3,310.11, which is less than half of what it lost the day before. 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 Nasdaq composite, heavy with technology stocks, did best, climbing 180.72 points, or 1.6%, to 11,185.59. Even so, the major indexes are still on track for weekly losses, including a second straight weekly decline for the S&P 500.

Technology led the recovery, with investors piling back into the biggest companies ahead of quarterly reports from Facebook, Amazon and Google's parent company. Willie Delwiche, an investment strategist at Baird, said leadership had returned to the mega-cap names in anticipation of good earnings that evening. All three companies did report results after the close that topped Wall Street's expectations.

The day also brought some encouraging economic data. The government estimated that the economy grew at a record annual rate of 33.1% from July through September, following a 31.4% annualized contraction from April through June. Applications for unemployment benefits eased last week to 751,000 from 791,000 the week before, and came in better than economists had forecast. That figure is still very high compared with the period before COVID-19.

The caution behind the rally was easy to find. A measure of investor fear in the U.S. stock market touched its highest level since June before receding Thursday, and oil prices kept falling on worries about demand. In Europe, stocks first rose but then 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.

Coronavirus cases are rising in the United States too. Even if the sweeping lockdowns of earlier this year don't return, the concern is that a worsening pandemic could keep customers away from businesses and cut into profits. Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the future still looks cloudy and that the virus will largely determine consumer behaviour.

Washington is offering little help. Congress and the White House have not delivered more support since the last round of supplemental benefits for laid-off workers and other stimulus expired in the summer. House Speaker Nancy Pelosi sent a letter to Treasury Secretary Steven Mnuchin on Thursday listing the topics she was still waiting to hear back on, including benefits for laid-off workers and coronavirus testing measures.

Expectations for Big Tech were high going in, and Microsoft showed the risk on Wednesday: its stock fell 5% even though profit and revenue beat forecasts. Analysts have noted that stocks are getting a smaller lift than usual from better-than-expected profits. Still, the reporting season has gone 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 forecast at the start of October. The 10-year Treasury yield rose to 0.83% from 0.79%. What happens with the virus, and with stimulus talks, will shape what comes next.