Market Analysis

The major U.S. index futures are currently pointing to a modestly lower open on Thursday, with stocks likely to give back ground following the rally seen in the previous session.

Profit taking may contribute to initial weakness on Wall Street, as the surge seen in the previous session lifted the Dow and S&P 500 to their best closing levels in well over a month even as the Federal Reserve announced another significant increase in interest rates.

A sharp pullback by shares of Meta Platforms (META) may also weigh on the markets, with the parent of Facebook and Instagram tumbling by 4.1 percent in pre-market trading.

The steep drop by Meta comes after the company reported weaker than expected second quarter results, including its first ever year-over-year drop in revenues.

The downward momentum on Wall Street also comes after the Commerce Department released a report showing a continued contraction in U.S. economic activity in the second quarter of 2022.

The Commerce Department said real gross domestic product decreased by 0.9 percent in the second quarter after slumping by 1.6 percent in the first quarter. Economists had expected GDP to increase by 0.5 percent.

With GDP unexpectedly declining for the second consecutive quarter, the data signals the U.S. economy is in a technical recession.

The drop in GDP in the second quarter reflected decreases in private inventory investment, residential fixed investment, government spending and nonresidential fixed investment.

Meanwhile, a separate report from the Labor Department showed a modest pullback in initial jobless claims in the week ended July 23rd.

Following the sell-off seen during Tuesday's session, stocks showed a substantial move back to the upside during trading on Wednesday. The major averages more than offset Tuesday's losses, with the Dow and the S&P 500 reaching their best closing levels in well over a month.

The major averages pulled back off their intraday highs going into the close but held on strong gains. While the Nasdaq spiked 469.85 points or 4.1 percent to 12,032.42, the S&P 500 surged 102.56 points or 2.6 percent to 4,023.61 and the Dow jumped 436.05 points or 1.4 percent at 32,197.59.

Stocks showed a significant rebound in early trading and accelerated to the upside following the Federal Reserve's monetary policy decision and Fed Chair Jerome Powell's post-meeting press conference.

While the Fed announced another 75 basis point interest rate, as widely expected, comments from Powell hinted at a slowdown in the pace of rate hikes at future meetings.

"As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation," Powell said.

The Fed's next monetary policy meeting is scheduled for September 20-21, with CME Group's FedWatch tool currently indicating a 59.2 percent chance of a 50 basis point rate hike and a 36.7 percent chance of another 75 basis points rate hike.

"With rates now close to the Fed's estimate of neutral, the economy clearly showing signs of a slowdown in the face of rising rates and inflation set to fall in July, we suspect the Fed will shift back to smaller hikes from here, with a 50bp hike in September the most likely option," said Michael Pearce, Senior U.S. Economist at Capital Economics.

The early rally on Wall Street partly reflected strong gains by Google parent Alphabet (GOOGL) and software giant Microsoft (MSFT).

Shares of Alphabet soared by 7.7 percent after ending Monday's trading at its lowest closing level in well over a year.

The rebound by Alphabet came as the company reported second quarter results that missed analyst estimates but were not as bad as some investors had feared.

Shares of Microsoft also surged by 6.7 percent after the company reported weaker than expected fiscal fourth quarter results but provided upbeat guidance.

Meanwhile, traders largely shrugged off separate reports showing an unexpected jump in durable goods orders and a much bigger than expected pullback in pending home sales.

Semiconductor stocks turned in some of the market's best performances on the day, resulting in a 4.8 percent spike by the Philadelphia Semiconductor Index.

Substantial strength also emerged among airline stocks, with the NYSE Arca Airline Index soaring by 4.3 percent on the day.

Oil service stocks also saw considerable strength, driving the Philadelphia Oil Service Index up by 4 percent. The strength in the sector came amid a sharp increase by the price of crude oil.

Retail, networking steel and financial stocks also showed notable moves to the upside, while tobacco stocks were among the few groups to buck the uptrend.

Commodity, Currency Markets

Crude oil futures are jumping $2.06 to $99.32 a barrel after surging $2.28 to $97.26 a barrel a barrel on Wednesday. Meanwhile, after inching up $1.40 to $1,719.10 an ounce in the previous session, gold futures are advancing $25.10 to $1,744.20 an ounce.

On the currency front, the U.S. dollar is trading at 134.90 yen versus the 136.57 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0156 compared to yesterday’s $1.0200.

Asia

Asian stocks advanced on Thursday after the U.S. Federal Reserve announced a 75 basis point rate hike, as widely expected, and indicated that it may be appropriate to slow the pace of increases going forward. The Fed said policy will be set meeting-by-meeting amid signs of an economic slowdown.

The upside remained somewhat capped as trading in U.S. stock futures indicated that the U.S. rally could stall when Wall Street reopens later in the day.

Fed Chair Jerome Powell said he thought the U.S. isn't currently in a recession, but economists say GDP may have contracted in the April to June period. A technical recession is defined as two consecutive quarters of GDP contraction.

Chinese shares rose ahead of U.S. President Joe Biden's upcoming call with Chinese leader Xi Jinping. The benchmark Shanghai Composite Index edged up 0.2 percent to 3,282.58, while Hong Kong's Hang Seng Index closed 0.2 percent lower at 20,622.68 as the city's monetary authority raised the borrowing cost by 75 basis points for the second consecutive month.

Japanese shares eked out modest gains, but the upside was limited amid concerns over the domestic corporate outlook and the strengthening of the yen in the fallout from the Fed decision.

The Nikkei 225 Index closed 0.4 percent higher at 27,815.48, after having crossed the 28,000 mark for the first time since June 10. The broader Topix slipped 0.2 percent to 1,948.85.

Automaker Mitsubishi Motors jumped 10.9 percent after strong first-quarter results, while Nitto Denko declined 2.3 percent to extend losses for a fourth consecutive session.

Seoul stocks rose for a fourth straight session to hit a six-week high on less-hawkish-than-feared messaging from Fed Chair Jerome Powell.

The Kospi ended up 0.8 percent at 2,435.27, the highest close since June 17, while the Korean won saw its best day in two months.

Samsung Electronics gave up some early gains to end little changed after warning of weaker demand for phones and PCs.

Australian stocks posted strong gains amid hopes that consumer prices in the country might be starting to peak. Investors shrugged off data showing that retail sales increased at the slowest pace this year in June.

The benchmark S&P/ASX 200 Index jumped 1 percent to 6,889.70, marking its highest close since June 10. The broader All Ordinaries Index closed 1.1 percent higher at 7,115.90, with buying seen across the board. Investment bank Macquarie Group surged 3 percent after posting a higher first-quarter profit.

Europe

European stocks are turning in a lackluster performance on Thursday, as investors react to a slew of earnings updates and less-hawkish-than-feared messaging from Fed Chair Jerome Powell.

While the French CAC 40 Index is up by 0.3 percent, the German DAX Index is down by 0.1 percent and the U.K.’s FTSE 100 Index is down by 0.2 percent.

British energy giant Shell has shown a notable move to the upside after its second quarter profit jumped more than five-fold.

Franco-Italian chipmaker STMicroelectronics has also rallied after its second quarter revenue exceeded analysts' estimates.

Miner Anglo American has also surged after backing its full-year production view. Automaker Volkswagen has also jumped after confirming its full-year guidance.

On the other hand, Spanish lender Banco Santander has shown a significant move to the downside after missing profit estimates.

Telecommunications group BT has also slumped after reporting lower pre-tax profit in the first quarter.

German healthcare firm Fresenius has also moved sharply lower after cutting its full-year outlook.

U.S. Economic Reports

U.S. economic activity unexpectedly saw a continued contraction in the second quarter of 2022, according to a report released by the Commerce Department on Thursday.

The Commerce Department said real gross domestic product decreased by 0.9 percent in the second quarter after slumping by 1.6 percent in the first quarter. Economists had expected GDP to increase by 0.5 percent.

With GDP unexpectedly declining for the second consecutive quarter, the data signals the U.S. economy is in a technical recession.

The drop in GDP in the second quarter reflected decreases in private inventory investment, residential fixed investment, government spending and nonresidential fixed investment.

Meanwhile, a separate report from the Labor Department showed a modest pullback in initial jobless claims in the week ended July 23rd.

The report showed initial jobless claims edged down to 256,000, a decrease of 5,000 from the previous week’s revised level of 261,000.

Economists had expected jobless claims to inch up to 253,000 from the 251,000 originally reported for the previous week.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $38 billion worth of seven-year notes.

Stocks In Focus

Shares of Stanley Black & Decker (SWK) are moving sharply lower in pre-market trading after the tool maker reported weaker than expected second quarter results and slashed its full-year guidance.

Communications chip maker Qualcomm (QCOM) may also come under pressure after reporting fiscal third quarter results that beat estimates but providing a disappointing forecast for the current quarter.

Electronics retailer Best Buy (BBY) may also move to the downside after lowering its full-year sales and earnings guidance.

On the other hand, shares of Etsy (ETSY) are likely to move to the upside after the online crafts marketplace reported better than expected second quarter results.