U.S. stocks climb as GDP report shows economy taking Fed’s rate hikes in stride

What’s driving markets

Stocks opened higher after a flurry of economic data including a fourth quarter GDP report that came in stronger than expected, but the focus was on the latest batch of earnings, which helped to revive investors’ optimism following disappointing guidance from Microsoft Corp.
MSFT,
+1.35%
earlier in the week.

The economy grew at a robust 2.9% annual pace to close out 2022, according to the first estimate of fourth quarter GDP, released Thursday morning — the latest sign that the U.S. economy is holding up well despite the Federal Reserve’s aggressive interest-rate hikes.

“Thursday’s GDP report suggests that the economy is relatively strong even in the face of aggressive measures by the Federal Reserve to calm inflation,” said Carol Schleif, chief investment officer, BMO Family Office, in emailed commentary.

Stocks rose after the data were released as investors found solace in the latest signs that a soft landing for the U.S. economy — a scenario where growth slows, but a recession is avoided — remains possible, or even likely.

“This is a bit of a relief rally,” said Christopher Zook, chairman and chief investment officer of CAZ Investments.

However, corporate earnings and guidance are still the primary concern for investors, along with expectations about when the Federal Reserve will cut interest rates, Zook said.

The labor market also showed signs of strength despite more reports of layoffs in the tech, finance and media spaces, as the number of Americans filing for unemployment benefits fell to their lowest level since April. Investors also digested durable goods orders for December. New home sales for December will be published at 10 a.m. ET.

Investors also celebrated a surge in Tesla Inc.
TSLA,
+9.64%
shares premarket after the firm released well-received results that showed record quarterly profits.

Disappointing guidance from technology behemoth Microsoft had clobbered stocks on Wednesday as traders worried it signaled not just difficulties for the sector but also broadly worsening economic conditions.

However, before the end of Wednesday’s session, Microsoft shares had recovered most of their 4.5% loss and the S&P 500 finished the session almost exactly where it began, according to data from FactSet.

As for the Federal Reserve, the central bank is expected to slow the pace of interest rate hikes when it next week raises its policy rate by 25 basis points to a range of 4.5% to 4.75%.

Companies announcing results on Thursday include: McDonald’s
MCD,
-0.28%,
Intel
INTC,
-0.34%,
Comcast
CMCSA,
+0.86%,
Visa
V,
+0.15%,
Dow
DOW,
-1.16%,
Whirl pool
WHR,
-0.91%,
Western Digital
WDC,
+3.72%
and Northrop Grumman
NOC,
-0.90%.

Companies in focus

• Tesla
  TSLA,
  +9.64%
  was up after the electric-car maker reported better-than-expected profits and said it was on track to deliver about 1.8 million vehicles this year.

• Southwest Airlines
  LUV,
  -4.52%
  fell after the air carrier reported a wider than expected fourth quarter loss and warned of another loss in the current quarter, while apologizing for the “operational disruptions” during the holiday travel season.

• IBM
  IBM,
  -4.60%
  was down though the Big Blue increased revenue more than 6% in 2022, the biggest sales increase in more than a decade.

• Archer Daniels Midland
  ADM,
  -0.82%
   said Thursday the agribusiness’s fourth-quarter profit rose to $1.02 billion, or $1.84 a share, from $782 million, or $1.38 a share, in the year-ago quarter.

• American Airlines
  AAL,
  -0.31%
  rallied after the air carrier reported the most quarterly profit since before the COVID pandemic.