Market Snapshot: Dow, S&P 500 resume rally boosted by earnings reports despite disappointing economic growth data

What’s driving the market?

Investors have been emboldened by strong results from leading American corporations, with Ford
F,
+9.36%
shares up 8% after the auto maker reported mixed third-quarter results but raised guidance for this year, resumed its dividend and said computer chip shortages are easing.

Worries that the economy is still hobbled in the wake of the pandemic and could continue to face higher prices and supply chain disruptions have been a lingering concern for market participants.

The U.S. economy grew at an annualized rate of 2% in third-quarter, according to an initial reading of gross domestic product, the official scorecard of the American economy. The reading, the slowest growth rate since the 2020 recession, was far weaker than expectations of 2.8%, and was down from 6.7% in the second quarter.

“GDP told us what we already knew, the economy slowed down considerably in the third quarter. The good news is we see the next few quarters more than making up for the slowdown, as COVID trends continue to improve,” said Ryan Detrick, chief market strategist at LPL Financial, in emailed remarks.

Pending home sales fell 2.3% in September compared with August, the National Association of Realtors reported Thursday. Economists polled by MarketWatch had projected a 1% increase.

Meanwhile, weekly new jobless claims fell to 281,000 in the week ending Oct. 23, marking the lowest since March of last year, from a revised 291,000 in the week prior.

The data offers a muddled picture of the economic recovery from COVID-19, with the Federal Reserve set to meet next week to update its policy plans.

Investors are also watching the actions of other central banks after the Bank of Canada decision to abruptly end its bond purchasing program and said it was on a path toward interest rate increases, as the U.S.’s northern neighbor aims to combat inflation fears.

Meanwhile, the European Central Bank on Thursday, as expected, left its monetary policy measures unchanged, saying it would continue to purchase assets via its pandemic emergency purchase program at a slower pace than seen in the second and third quarters. ECB President Christine Lagarde pushed back against rising market expectations for rate increases by the end of next year, but failed to reverse bets on such a move.

See: ECB’s Lagarde pushes back against rising interest rate-hike expectations, but markets don’t listen

Those moves come as the Federal Reserve is scheduled to hold its two-day rate-setting gathering Nov. 2-3, where it is widely expected to announce and start tapering of its monthly purchases of $120 billion in Treasurys and mortgage-backed securities.

“If anything, following yesterday’s news of an unexpected sharp widening of the merchandise trade deficit in September, the balance of risks to that estimate appear to lie to the downside, with net exports perhaps subtracting 1 percentage point from growth,” said Emily Nicol, economist at Daiwa Capital Markets Europe.

In political news, President Biden is set to release a new framework on the Democrats’ $1.75 trillion social spending and climate package which is aimed at winning support of congressional Democrats, according to The Wall Street Journal, citing people familiar.

Looking ahead, Amazon.com Inc. AMZN and Apple Inc. AAPL reporting after the close.

Which companies are in focus?

• Caterpillar Inc. CAT shares rose more than 3.7% after the maker of equipment for the construction and energy industries swept pass profit estimates for the third quarter. 

• Shares of Merck & Co. Inc. MRK rose 5.2% after the drugmaker and animal health company reported third-quarter profit and revenue that rose above expectations and provided and upbeat full-year outlook.

• Hertz Global Holdings Inc. HTZZ, which emerged from bankruptcy in July, said Thursday it had net income of $571 million, or $1.13 a share, in the third quarter, after a loss of $222 million, or $1.42 a share, in the year-earlier period. Shares rose 5.6%.

• Hershey Co. HSY stock rose 0.4% after the candy company reported third-quarter earnings that beat expectations and raised its guidance.

• Molson Coors Beverage Co. shares TAP fell 0.7% after the brewer of Coors Light, Miller Lite, Molson Canadian, and other beer brands beat earnings estimates for the third quarter.

• Shares of Northrop Grumman Corp. NOC were in focus after the aerospace and defense contractor reported third-quarter profit that beat expectations but sales that fell short, as weakness in the company’s service business offset an increase in product sales. Shares tumbled 6.6%.

• Kohl’s Corp. KSS announced its holiday plans on Thursday, and in addition to nonprofit donations and media sponsorships, the department-store retailer will host Instagram Live and live TikTok shopping events, offering gift ideas and holiday prep tips. Shares were up 1.8%.

How are other assets faring?

• The yield on the 10-year Treasury note TMUBMUSD10Y rose 2.1 basis points to 1.570%, after seeing its steepest daily drop since July 19 as front-end yields jumped, flattening the curve. Yields and debt prices move in opposite directions.

• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was off 0.5%.

• Oil futures traded lower, with the U.S. benchmark CL00 down 0.2% to reach $82.47 a barrel. Gold futures GC00 traded 0.2% higher at $1,802.50 an ounce.

• In European equities, the Stoxx Europe 600 SXXP edged up 0.2% and London’s FTSE 100 UKX was down 0.1%.

• The Shanghai Composite SHCOMP fell 1.2%, while the Hang Seng Index HSI dropped 0.3% in Hong Kong, while Japan’s Nikkei 225 NIK saw a 1% decline.