Wall Street Steadies After Its Worst Drop in Four Months, Buoyed by Encouraging Economic Data

By early afternoon Thursday, Wall Street had stopped sliding. At 1:09 p.m. Eastern, the S&P 500 was up 0.8%, a modest recovery after Wednesday's 3.5% tumble, its worst day in more than four months. The Dow Jones Industrial Average had gained 30 points, or 0.1%, to 26,550, and the Nasdaq composite was 1.4% higher. Within the S&P 500, a strong rebound in tech stocks more than offset losses among health care companies.

Two economic reports did the steadying. A government estimate showed the U.S. economy growing at a record annualized rate of 33.1% from July through September. That followed the April-to-June collapse, when it shrank at an annualized 31.4%. Separately, the number of workers applying for unemployment benefits last week eased to 751,000 from 791,000 the week before, and came in better than economists had forecast. It is still far higher than anything seen before COVID-19.

The relief sits against a harder backdrop. Wednesday's drop came on worries that the worsening pandemic will once again weigh on the economy and on corporate profits. Cases are rising in the United States, which raises the prospect of renewed business restrictions. Even without the sweeping lockdowns of earlier this year, the fear is that customers will simply stay away. Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the future still looks cloudy and that what happens with the virus will determine consumer behaviour.

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, including benefits for laid-off workers and measures on coronavirus testing.

Europe followed a similar path. Stocks there initially rose, then levelled off after the head of the European Central Bank said there is "little doubt" it will deliver more stimulus in December. They were recovering from a sharp slide Wednesday, when France and Germany announced new restrictions on businesses to slow the virus's spread. Germany's DAX returned 0.3%, while France's CAC 40 and London's FTSE 100 were unchanged. 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 inched up 0.1%.

Signs of nerves remained. A measure of investor fear in the U.S. market touched its highest level since June before receding. Oil kept falling on demand worries: benchmark U.S. crude lost 3.9% to $35.93 a barrel, and Brent lost 4% to $38.07. The 10-year Treasury yield rose to 0.81% from 0.79% late Wednesday.

Attention turned to after the close, when Apple, Amazon, Facebook and Google's parent company were due to report summer profits. Their enormous market value means their moves sway the S&P 500 and other indexes more than other stocks, and all four were up between 1.6% and 5.3% beforehand. Expectations are high, since investors have bid up the shares on the belief that work-from-home and other pandemic-accelerated trends will keep profits soaring. Microsoft showed the risk on Wednesday, when its stock fell 5% despite profit and revenue stronger than Wall Street expected. Analysts have noted that stocks are getting a smaller boost than usual from better-than-forecast profits.

That has dampened enthusiasm in what has been a better earnings season than feared. S&P 500 earnings per share are on track to be down about 13% from a year earlier, far milder than the nearly 21% decline analysts forecast at the start of October, according to FactSet. The next signals to watch are the big tech earnings reports and whether the stalled stimulus talks revive.