Dow threatens to snap longest winning streak since 1987 as stocks give up early gains

What’s driving markets

U.S. stocks initially benefited from the latest batch of strong earnings reports and economic data on Thursday morning. However, the three major stock indexes trimmed gains to trade lower in the afternoon trading after a news report said the Bank of Japan will discuss tweaking its yield curve control policy at a policy board meeting Friday to let long-term interest rates rise beyond its cap of 0.5% by a certain degree.

See: Yen strengthens, stocks wobble after report Bank of Japan will discuss tweak to monetary policy

The yield on the 2-year Treasury
TMUBMUSD02Y,
4.928%,
which are more sensitive to imminent central banks’ move, rose 7 basis points, to 4.91% from 4.83% on Wednesday, while the yield on the 10-year Treasury 
TMUBMUSD10Y,
4.014%
climbed 14 basis points to 3.99%, according to FactSet data.

Meanwhile, an earnings beat by Meta Platforms
META,
+4.70%,
the owner of Facebook and Instagram, helped catapult the Nasdaq Composite into the lead among the major U.S. equity indexes, while strong second-quarter GDP helped boost both the Dow and the S&P 500.

Second-quarter GDP rose 2.4% compared with 2% growth during the quarter ended in March, while weekly jobless benefit claims fell to the lowest since February.

See: GDP increases at 2.4% annual pace in the second quarter

Carol Schleif, chief investment officer at BMO Family Office said the GDP data is “supportive of the soft landing scenario,” as it’s clear that the Fed has yet to cause a recession even after its many interest-rate hikes over the past a year and half, while inflation is coming down, which is the “exact outcome investors were hoping for,” said Schleif in emailed comments on Thursday.

See: Fed no longer foresees a U.S. recession — and other things we learned from Powell’s press conference

The Federal Reserve on Wednesday raised its benchmark interest rates by 25-basis-point to a range of 5.25% to 5.5%, the highest level in 22 years. In the press conference, the Chair Jerome Powell made news by saying the Fed staff is now forecasting a “noticeable slowdown” rather than a recession as policy makers have seen the recent resiliency in the economic data.

Traders are betting that this could be the final rate hike of a cycle that began in March 2022, when the Fed first lifted interest-rates off the zero-bound, where they had languished since the advent of the COVID-19 pandemic.

Shares of Meta climbed more than 8% after the company’s better-than-expected earnings, as well as its revenue outlook for the current quarter. The advance by Meta, one of Wall Street’s “Big Seven” stocks, helped drag other members of the elite group higher as well, with shares of Apple Inc.
AAPL,
-0.80%
up 0.9%, and Alphabet Inc.’s Class A
GOOGL,
+0.17%
shares up 2.2%. Meta released earnings Wednesday evening after the U.S. market had closed.

Earnings reports from Comcast Corp.
CMCSA,
+5.26%
and McDonald’s Corp.
MCD,
+1.22%
also arrived ahead of the bell. Both companies beat Wall Street’s expectations for sales. Results from chipmaking giant Intel are due out after the close.

The stronger-than-expected results from the largest U.S. companies during the second quarter has helped drive stocks higher in July, helping to drive the Dow’s historic winning streak.

To be sure, Wall Street had low expectations heading into the quarter, which is expected to be the third consecutive quarter of negative earnings growth for S&P 500 index companies. So companies’ earnings beats are “a little like dunking on an 8-foot hoop,” said Jason Krupa, vice president of asset management at Lenox Advisors, during a phone interview with MarketWatch.

In aggregate, S&P 500 companies are beating Wall Street’s earnings expectations by 7.1% so far, according to the latest data from Refinitiv. That’s compared with a the long-term average of 4.1%.

In other central banking news, the European Central Bank followed the Fed with an interest-rate hike of its own. It raised its deposit rate by 25 basis points, or a quarter of a percentage point, to 3.75%.

Companies in focus

• Meta Platforms Inc. stock
  META,
  +4.70%
  rose 5.4% on Thursday after the Facebook and Instagram parent handily beat Wall Street expectations for its second quarter and ad revenue jumped.

• Chipotle Mexican Grill Inc.
  CMG,
  -9.71%
  tumbled 9.4% after the fast-casual restaurant chain said inflation hit some of its most popular menu items.

• Mattel Inc.
  MAT,
  -0.77%
  late on Wednesday reported second-quarter results that beat estimates, but the toy maker held to its full-year outlook as the “Barbie” movie’s blowout debut weekend clashed with continued muted demand for toys. Shares fell 0.3% on Thursday.

• eBay Inc.
  EBAY,
  -10.48%
  dipped 9.6% after the e-commerce site’s earnings outlook came in lower than expected.

• Southwest Airlines
  LUV,
  -9.51%
  tumbled 9.4% after the airline said its revenue has not yet recovered to prepandemic levels and it’s adjusting its 2024 flight schedule to reflect changes to customer patterns.

Steve Goldstein contributed