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Stocks move higher despite second-straight GDP contraction, Dow jumps 350 points

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U.S. equities rose on Thursday even after the newest GDP showed a second-straight contraction as investors bet the economic downturn would soon cause the Federal Reserve to finish its aggressive mountaineering campaign.

The Dow Jones Industrial Average jumped 349 points, or 1.1%, while the S&P 500 rose 1.2%, and the Nasdaq Composite added 0.8%. All of the most important averages cut steeper losses from earlier within the session and are on pace for a winning week in addition to their best month of 2022.

Stocks initially dipped after the GDP report but rebounded as investors digested what the reading could mean for the likelihood of a recession while considering the Federal Reserve’s latest monetary policy decision. U.S. economic growth fell 0.9% within the second quarter, the Bureau of Economic Evaluation reported Thursday. The Dow Jones estimate was for a gain of 0.3%. First-quarter GDP declined by 1.6%.

“Today’s reading only adds fuel to the fireplace that we’re in or entering a recession,” said Mike Loewengart, managing director of investment strategy for E-Trade. “While it’s actually on the negative side of the estimates, have in mind that a 1% decrease is comparatively small and supports the concept any recessionary environment can be mild.”

“The Fed has been clear that controlling inflation is its top priority so it’s unlikely it is going to change course because of one other negative quarter, although today’s report could seem contradictory to Powell’s recession comments yesterday,” he added. “The market has been rallying in July so do not be surprised to see the realities of the challenges that lie ahead set in for investors.”

The moves come on the heels of a broad-based rally Wednesday after the Fed hiked rates of interest by 0.75 percentage point for the second consecutive time to fight inflation, and investors bet on whether the central bank can halt surging prices without pushing the economy right into a recession.

Investors have grown increasingly concerned in recent months that the Federal Reserve’s attempts to tame surging prices would move the economy closer to a recession. Many characterize a recession as having two back-to-back negative quarters of economic growth. It’s more nuanced than that. The National Bureau of Economic Research, the official arbiter of recessions, considers several additional aspects.

Traders also continued to watch a deluge of second-quarter company earnings Thursday. Honeywell and Etsy each reported strong results that boosted their shares 3% and 9%, respectively. Ford Motor climbed nearly 6% after it beat profit and revenue estimates and raised its dividend.

On the flip side, Shares of Meta Platforms dipped 6% on the back of disappointing quarterly numbers. Shares of Comcast slid greater than 8% after reporting it didn’t add broadband subscribers for first time ever.

Nearly 49% of S&P 500 firms have reported earnings through Thursday’s open. Of those firms 71.5% have beaten estimates, FactSet data shows. Investors are looking forward to results from Apple, Amazon, Intel and Roku slated for after the bell.

In other news, solar stocks soared after Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.V., said they’ve reached a deal on climate spending. Residential solar installers Sunrun and Sunnova jumped 24% and 23%, respectively. SunPower gained greater than 16%. The Invesco Solar ETF added 6%.

Spirit Airlines rose almost 5% following its announcement that it has agreed to be acquired by JetBlue, after a months-long bidding war.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC.

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