Wall Street Recovers Early Losses to Close Higher as Big Tech Earnings Loom

By the close of trading on Thursday, October 29, 2020, the S&P 500 had climbed 1.2%, a turnaround from a morning in which it had been down 0.3%. The index added 39.08 points to finish at 3,310.11. That was less than half of what it had surrendered the day before, when a 3.5% tumble marked the market's worst drop in more than four months.

Wednesday's selloff came from worry that a worsening pandemic would again drag down the economy and corporate profits. Thursday's recovery drew on two pieces of economic data. The government estimated that the economy grew at a record annual rate of 33.1% from July through September, following a collapse of 31.4% at an annualized pace from April through June. And 751,000 U.S. workers applied for unemployment benefits last week, down from 791,000 the week before and better than economists had forecast. That figure is still extraordinarily high compared with the period before COVID-19.

The other Wall Street indexes finished higher too. The Dow Jones Industrial Average gained 139.16 points, or 0.5%, to 26,659.11, after having been down 229 points and having climbed as high as 371 points. The tech-heavy Nasdaq composite did best, rising 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 stocks led the rebound, with investors positioning ahead of quarterly reports from Facebook, Amazon and Google's parent company. All three reported after the close of regular trading, and each topped Wall Street's expectations. "If you look at the leadership today, it's back to the mega-cap names," said Willie Delwiche, an investment strategist at Baird, describing the buying as anticipation of good earnings from a swath of companies reporting that evening.

Expectations were high, and Microsoft showed the risk in that on Wednesday. Its stock slid 5% even though it reported stronger profit and revenue than analysts expected. Analysts have noted more broadly that stocks aren't getting their usual lift from profits that beat forecasts. That has tempered enthusiasm in what has been a better reporting season than feared: earnings per share for S&P 500 companies are on track to fall about 13% from a year earlier, far milder than the nearly 21% decline Wall Street forecast at the start of October, according to FactSet.

Caution lingered beneath the calm. A measure of investor fear in the U.S. market touched its highest level since June before receding Thursday, and oil prices kept sliding on worries about demand from a virus-weakened economy. In Europe, stocks initially rose but levelled off after the head of the European Central Bank said there is "little doubt" more stimulus will arrive in December. They were also recovering from Wednesday's sharp slide, when France and Germany announced new business restrictions to slow the virus's spread.

Coronavirus cases are also rising in the United States, and the concern is that even without sweeping lockdowns like those earlier this year, the pandemic could keep customers away and cut into profits. "The future still looks cloudy," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "What happens with the virus will definitely determine consumers' behaviour."

Washington offers little relief for now. Economists and investors have been urging more aid since the summer, when supplemental benefits for laid-off workers and other stimulus approved earlier in the year expired. Hopes of a deal are fading, and House Speaker Nancy Pelosi sent Treasury Secretary Steven Mnuchin a letter Thursday listing the topics she is still waiting to hear back on, including benefits for laid-off workers and coronavirus testing measures. The yield on the 10-year Treasury rose to 0.83% from 0.79% late Wednesday. What happens next depends on the virus and on whether talks on aid move at all.