Wall Street Steadies After Worst Drop in Four Months as Economic Data Beats Forecasts

By early afternoon Thursday in New York, the S&P 500 was up 0.8%, a modest recovery after a day that had rattled Wall Street. On Wednesday the index fell 3.5%, its worst drop in more than four months, as investors worried that a worsening pandemic would again drag down the economy and corporate profits. Two pieces of better-than-expected economic data helped steady things.

As of 1:09 p.m. Eastern, the Dow Jones Industrial Average was up 30 points, or 0.1%, at 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.

The first piece of data was the government's estimate that the economy grew at a record annualized rate of 33.1% from July through September. That followed a collapse from April through June, when it shrank at an annualized rate of 31.4%. The second was the weekly count of Americans applying for unemployment benefits, which eased to 751,000 from 791,000 the week before. That is still very high by pre-COVID standards, but it beat what economists had forecast.

Caution has not gone away. 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. Benchmark U.S. crude dropped 3.9% to $35.93 a barrel, and Brent crude, the international standard, lost 4% to $38.07. The yield on the 10-year Treasury edged up to 0.81% from 0.79% late Wednesday.

The underlying worry is the virus. Cases are rising in the United States as well as in Europe, where France and Germany announced new restrictions on businesses on Wednesday, triggering a sharp slide in European stocks. Even if the sweeping lockdowns of earlier this year don't return, the fear is that a worsening 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 consumer behaviour." In Europe, stocks initially rose Thursday but leveled off after the head of the European Central Bank said there is "little doubt" it will deliver more stimulus in December. Germany's DAX returned 0.3%, while France's CAC 40 and London's FTSE 100 were unchanged.

In Washington, hopes are fading for more support for the economy. Economists and investors have been asking for it since the summer, when supplemental benefits for laid-off workers and other stimulus approved 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, including benefits for laid-off workers and measures on coronavirus testing.

Attention also turned to earnings. After the close Thursday, Apple, Amazon, Facebook and Google's parent company were scheduled to report summer profits. Because of their enormous market value, their moves weigh far more heavily on the S&P 500 than other stocks do. Ahead of the reports, they were up between 1.6% and 5.3%. 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 soaring. Microsoft showed the risk on Wednesday: its stock slumped 5% even though its profit and revenue beat forecasts.

That pattern has been broader. Analysts have noted that stocks are getting less of a lift than usual from stronger-than-forecast profits, even though the reporting season has been better 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.

In Asia, Japan's Nikkei 225 dipped 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%. What to watch next: the Big Tech earnings reports, any movement in stimulus talks, and the course of the virus.