Wall Street Steadies After Encouraging Economic Data Eases Fears Following Its Worst Drop in Four Months

By early afternoon Thursday, October 29, 2020, the S&P 500 was up 0.8%, a modest recovery after the previous day's 3.5% tumble, its worst drop in more than four months. Two pieces of economic data did most of the steadying. One showed how fast layoffs were running. The other showed how sharply the economy had bounced back over the summer.

The bounce was large. A government estimate released Thursday put growth at a record annual rate of 33.1% for July through September. That followed the spring collapse, when the economy shrank at an annualized 31.4% from April through June. Separately, the number of U.S. workers applying for unemployment benefits last week fell to 751,000, from 791,000 the week before. That is still very high compared with the period before COVID-19, but it was better than economists had forecast.

As of 1:09 p.m. Eastern time, the Dow Jones Industrial Average was up 30 points, or 0.1%, at 26,550. The Nasdaq composite had gained 1.4%. Inside the S&P 500, a strong rebound in technology stocks more than offset losses among health care companies.

Caution did not go away. A measure of investor fear in the U.S. stock market touched its highest level since June before easing Thursday. Oil kept falling on worries about demand from a weakened economy: benchmark U.S. crude dropped 3.9% to $35.93 a barrel, and Brent crude lost 4% to $38.07. The yield on the 10-year Treasury rose to 0.81% from 0.79% late Wednesday.

The worry behind Wednesday's slide was the worsening pandemic. Coronavirus cases are rising in the United States, and in Europe, France and Germany announced new restrictions on businesses that day, which hit European stocks. On Thursday those markets recovered only partly. The head of the European Central Bank said there is "little doubt" more stimulus will come in December, and stocks first rose, then levelled off. Germany's DAX returned 0.3%, while France's CAC 40 and London's FTSE 100 were unchanged. Even without the sweeping lockdowns of earlier this year, the fear is that surging infections 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 consumer behaviour."

Help from Washington looks unlikely soon. Congress and the White House have not agreed on new support, though economists and investors have been asking for it since the summer, when supplemental benefits for laid-off workers and other stimulus passed earlier in the year expired. 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 measures on coronavirus testing.

Corporate earnings add another layer. Apple, Amazon, Facebook and Google's parent company were due to report summer profits after the close Thursday. Because of their huge market value, their stocks move the S&P 500 more than most others, and all four were up between 1.6% and 5.3% beforehand. Expectations are high, since investors have bid up Big Tech on the belief that work-from-home and similar pandemic-accelerated trends will keep profits climbing. Microsoft showed the risk Wednesday: its stock fell 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-forecast results.

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

In Asia, Japan's Nikkei 225 slipped 0.4% after its central bank held policy steady while downgrading its outlook because of COVID-19 outbreaks. South Korea's Kospi fell 0.8%, Hong Kong's Hang Seng lost 0.5%, and Shanghai edged up 0.1%. The next signals will be the Big Tech earnings reports and whether stimulus talks in Washington move at all.