US stocks rebounded on Thursday as investors regrouped after a Big Tech-led wipeout in the prior session, inspired by AI doubts.
The Dow Jones Industrial Average (^DJI) rose more than 1% or roughly 450 points while the S&P 500 (^GSPC) gained as much as 1% on the heels of Wednesday’s steep closing losses. The Nasdaq Composite (^IXIC) erased early session losses to rise 0.6%, after coming off the worst day for the tech-heavy index since October 2022.
Stocks are running into a wall as Wall Street starts to question when tech companies’ huge investments in AI will start to pay off. Unimpressive earnings from Alphabet (GOOGL, GOOG) and Tesla (TSLA) earlier in the week have dented hopes that Big Techs can live up to their AI-fueled sky-high valuations.
The fallout rippled through global stock markets, helped send Europe’s benchmark Stoxx 600 (^STOXX) down over 1%. Nikkei 225 (^N225) sank to a 3%-plus loss at the close, though a sudden yen (JPY/USD=X) gain also drove the Tokyo benchmark into technical correction.
At the same time, concerns about the robustness of the US economy are emerging as big-name earnings misses cast doubt on how consumers are holding up in the face of historically high borrowing costs.
Given that, traders are now pricing in bigger cuts by the Federal Reserve — a reduction of about 30 basis points by September, and of almost 70 basis points over 2024, according to money markets. Odds on an earlier-than-expected rate cut in July have also ticked up, CME FedWatch data showed.
Read more: 32 charts that tell the story of markets and the economy right now
An advance estimate of gross domestic product (GDP) showed the US economy grew at an annualized pace of 2.8% during the second quarter. That was well above the 2% growth expected by economists surveyed by Bloomberg.
The Personal Consumption Expenditure Price Index update for July on Friday will give the Federal Reserve another data point to consider regarding rate cut timing.
On the corporate front, Ford (F) shares tumbled 16% after the automaker posted a quarterly profit miss.
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