What’s driving markets

Stocks rallied Thursday following the release of data of second-quarter GDP which showed that the U.S. economy had contracted by 0.9% between the beginning of April and end of June. The data marked a second consecutive quarter of contraction following a minus 1.6% print for the first quarter of 2022. Stocks have recently greeted signs of a slowing economy with gains, as investors bet that weak data might pressure the Fed to slow the pace of interest rate hikes.

See: U.S. economy shrinks in the second quarter, GDP shows, and invites talk of recession

“What everyone can agree upon is that the economy is slowing rather quickly and that will keep the pressure on the Fed to tighten as much as they possibly can before they will need to go on hold,” said Edward Moya, Senior Market Analyst, The Americas at OANDA. “Stagflation is obviously here now and will ultimately force the Fed into a difficult decision as to when they may need to pause tightening.”

However, U.S. Treasury Secretary Janet Yellen on Thursday said the economy is slowing but it’s still healthy by many measures. She said some slowdown in the economy is needed to help combat the highest inflation in almost 41 years.

“Most economists and most Americans have a similar definition of recession – substantial job losses and mass layoffs, businesses shutting down, private sector activity slowing considerably, family budgets under immense strain,” the Treasury chief said during a press conference on Thursday afternoon. “That is not what we’re seeing right now when you look at the economy. Job creation is continuing; household finances remain strong. Consumers are spending and businesses are growing.”

Weekly initial jobless claims fell by 5,000 to 256,000 in the week ended July 23, according to the latest weekly reading on the number of Americans filing for unemployment benefits. However, the four-week average of new claims rose for the eight straight week.

The surge in stocks that began Wednesday has been fueled in part by Powell saying that interest rates are now in the range of neutral territory and that the pace of hikes may slow, though he left another 75 basis point hike in September as a possibility.

See: Was Fed’s Powell dovish or not? 4 key takeaways from Wednesday’s press conference

“Today’s GDP numbers will reinforce pessimism about both the state of the U.S. economy and the outlook for corporate profits,” David Kelly, Chief Global Strategist, J.P. Morgan Asset Management wrote in a note. “However, a small silver lining for markets is that an avowedly data-dependent Federal Reserve should see, in this weakness, a reason to be less aggressive in hiking rates in the rest of 2022.”

Corporate earnings have also been an important driver of markets this week, which is expected to be the busiest week of such reports for the entire quarter. Meta Platforms
META,
-5.22%,
the parent company of Facebook and Instagram, released their quarterly report late Wednesday, showing worse than forecast profit and sales and guiding to revenue below estimates in the current quarter.

See: Facebook revenue declines for first time, and Meta’s downfall is expected to get worse

Nearly 49% of S&P 500 companies have reported earnings through Thursday’s open. Of those companies 71.5% have beaten estimates, FactSet data shows.

Looking ahead, earnings are due from Apple AAPL, Amazon AMZN and Mastercard MA after Thursday’s market close. The June Personal Consumption Expenditures (PCE) data, the inflation gauge favored by the Federal Reserve, will be released Friday morning.

Companies in focus

Ford Motor Company
F,
+6.10%
shares were up 5.5% after the carmaker reported a more than 50% increase in total sales during the second quarter.

Pfizer Inc. 
PFE,
-1.51%
shares dropped 0.1% even after the pharmaceutical giant reported big second-quarter profit and revenue beats driven primarily by sales of its COVID drugs.

Shares of Meta Platforms
META,
-5.22%
slid 6.1% after the Facebook parent company reported its first-ever quarterly sales decline.

Spirit Airlines
SAVE,
+5.64%
shares were up 4.8% after JetBlue
JBLU,
-0.36%
agreed to a $3.8 billion deal to buy Spirit.

Etsy
ETSY,
+9.86%
shares jumped 10% after the e-commerce company reported better-than-expected results for the second quarter.

Trading in Bausch Health Companies
BHC,
-50.35%
was briefly halted Thursday morning and was down 50.3% after a Delaware federal court judge issued an oral order on patent litigation over Xifaxan, Bausch’s drug that treats irritable bowel syndrome and diarrhea. 

Other markets

The yield on the 2-year Treasury note 
TMUBMUSD02Y,
2.875%
was at 2.867% on Thursday. The 10-year Treasury note yield  
TMUBMUSD10Y,
2.675%
fell to 2.679%. Yields and debt prices move opposite each other.

September West Texas Intermediate crude 
CL.1,
-0.09%
CLU22,
-0.09%
 fell 84 cents, or 0.9%, to settle at $96.42 a barrel on the New York Mercantile Exchange after trading as high as $99.84. September Brent crude 
BRNU22,
+0.33%
 rose 52 cents, or 0.5%, to close at $107.14 a barrel on ICE Futures Europe. 

Gold
GC00,
+1.95%
GCQ22,
+1.95%
 for October delivery gained $31.20, or 1.8%, to settle at $1,750.30 per ounce. According to the FactSet data, that was the biggest one-day percentage gain for a most-active contract since March. Copper
HGU22,
+1.66%
prices for September delivery advanced 4 cents, or 1.3%, to $3.4745 per pound.

The ICE U.S. Dollar Index was up 0.1% as the Japanese yen weakened following the latest Bank of Japan meeting.

Bitcoin
BTCUSD,
+4.64%
and ethereum prices
ETHUSD,
+8.45%
surged Thursday, with bitcoin trading north of $23,000 and ethereum above $1,600.

The STOXX Europe 600 Index
SXXP,
+1.09%
rose 1.09% Thursday and London’s FTSE 100 
UKX,
-0.04%
dropped 0.04%.

In Asia, the Shanghai Composite Index
SHCOMP,
+0.21%
ended 0.21% higher, while the Hang Seng Index
HSI,
-0.23%
was down 0.23%.

— Steve Goldstein contributed to this article.