By Lisa Pauline Matakal and David French
(Reuters) – Wall Street’s main indexes rose on Thursday, a day after a sell-off led by technology stocks, as small-cap stocks and stronger-than-expected gross domestic product data provided support.
Small-cap stocks rose 2.3%, on track to fully recoup Wednesday’s big losses. The Dow Jones Industrial Average led the three major indexes in percentage gains as investors reassessed their recent flight to underperforming sectors.
Most large-cap stocks recovered from a sluggish start and were in positive territory by mid-afternoon. Amazon.com Inc (O:), Apple Inc (NASDAQ:) and Nvidia Inc (NASDAQ:) were up between 0.8% and 1.2%.
While Alphabet (NASDAQ: ) shares fell 0.8%, Tesla (NASDAQ: ) shares rose 4.5%. Weak earnings from the Google parent and electric-car maker hurt the so-called Magnificent Seven group of tech stocks on Wednesday, sending the Nasdaq index to its worst day since 2022.
GDP data provided support, showing the U.S. economy expanded 2.8% in the second quarter versus estimates of 2%. Inflation also eased, leaving expectations of a Federal Reserve rate cut in September intact.
“We’ve been calling for a moderate recovery, expecting the economy to hold up, and this report shows that the economy is actually strong,” said Brian Klimecki, chief market strategist at Cetera Investment Management. “The Fed doesn’t necessarily need to kill growth; it’s actually looking to kill inflation.”
CME’s FedWatch tool showed bets on a 25 basis point rate cut by September had reached 85.8%, up from about 78% before Thursday’s data.
According to data from the London Stock Exchange, market participants also expect at least two interest rate cuts by December.
Investors are now awaiting Friday’s personal consumption expenditures price data to confirm bets on an early start to interest rate cuts by the Federal Reserve, following a recent trend of easing inflation and some weakness in the labor market.
While heavyweight stocks have pushed the market to all-time highs this year, Wednesday’s selloff has heightened concerns that these stocks may be overextended and are headed for more turmoil.
This concern has prompted value investors to accelerate their rotation into smaller-cap stocks and other sectors outside of large-cap technology.
The S&P Small Cap 600 Index rose 2.2% on Thursday.
By 2:02 p.m. ET, the S&P 500 was up 31.81 points, or 0.59%, at 5,458.94, while the FTSE 100 was up 103.14 points, or 0.57%, at 17,445.55. The index advanced 357.37 points, or 0.90%, to 40,211.24.
Among the profit-driven moves, IBM Amazon (NYSE:) shares rose 5.8%, also boosting the Dow Jones Industrial Average, after the technology company beat estimates for second-quarter revenue and raised its annual growth forecast for its software business.
American Airlines (NASDAQ:AAL) rose 4.1%, reversing premarket losses after cutting its full-year earnings outlook. Southwest Airlines (NYSE:SWA) rose 6.8% after saying it would implement changes including ending open seating and introducing seats with extra legroom.
Advances in airlines and logistics, up 6% for Old Dominion (O:) and 6.4% for JP Hunt, helped lift average earnings by 2.5%.
Ford (NYSE:F) shares fell 17.3% after the company’s adjusted second-quarter earnings missed estimates by a wide margin. Edwards LifeSciences (NYSE:E) shares fell 29.6% after its second-quarter revenue missed estimates.
