Wall Street Stabilizes After Drop, While Small Caps Rise

NEW YORK (AP) — U.S. stocks stopped bleeding Thursday, a day after their worst losses since 2022 led to a meltdown in financial markets around the world.

The S&P 500 was up 0.5% in midday trading after a Surprisingly positive report on the US economy raised hopes of greater profits among smaller stocks and other previously unpopular sectors of the market. The Dow Jones Industrial Average was up 286 points, or 0.7 percent, as of 11:15 a.m. ET, and the Nasdaq Composite Index was up 0.4 percent.

Many Big Tech stocks also stabilized, a day after the release of earnings You're here And Alphabet disappointed and raised concerns about investors' ability frenzy around artificial intelligence Technology has driven stock prices too high.

If the handful of actions The Magnificent Seven stocks have a huge impact on Wall Street, as they have become by far the most valuable U.S. companies. That gives their stock price movements a greater influence on the S&P 500, and the Magnificent Seven were a major reason the index hit dozens of all-time highs in 2024.

For much of the year, strength in big technology companies masked weakness in other underlying stocks, which have struggled with high interest rates meant to tame inflation. But Thursday’s economic report raised hopes of improving earnings for all sorts of companies and sparked a broad-based rally.

The economy accelerated growth The inflation rate is expected to rise 2.8% from April to June, double the previous quarter. Perhaps just as important for Wall Street, the report wasn't so hot that it stoked concerns about upward pressure on inflation.

Because inflation has largely resumed its slowdown After a disappointing start to the year, traders generally expect the Federal Reserve The Fed will begin cutting its key interest rate, which is the highest level in more than two decades. After Thursday's report, traders still believe there is a 100% chance the Fed will begin doing so in September, according to data from CME Group.

A rate cut would ease pressure that has built up on both the economy and financial markets, and investors believe it could provide a particularly important boost to small stocks and other previously depressed sectors of the market.

The Russell 2000 index of small caps jumped 1.9%, outperforming other stock indexes. It has gained about 9% this month, compared with a slight decline for the large cap S&P 500.

In the bond market, the yield on 10-year Treasury notes slipped from 4.28% to 4.22% late Wednesday, down sharply from 4.70% in April, providing a strong boost to stock prices.

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IBM was a major driver of the Dow Jones Industrial Average, which rose 4.3% after reporting better-than-expected profit and revenue in the latest quarter. The company also raised its cash forecast for this year, saying its artificial intelligence business was strong.

ServiceNow was also one of the strongest drivers of market growth. The company, whose platform helps businesses connect seemingly disjointed systems, jumped 13.4% after reporting higher-than-expected profit and revenue. It also raised its subscription revenue forecast for this year.

Airline stocks soared after American Airlines Group and Southwest Airlines Both airlines reported spring earnings that beat analysts' expectations. Southwest also announced a break with a 50-year tradition: It will begin assigning seats and selling premium seats to customers who want more legroom.

American Airlines climbed 3.2% and Southwest Airlines climbed 4.4%.

Ford Motor Company fell 16.4% after reporting second-quarter profit that missed analysts' expectations. net profit fell as its combustion engine unit posted a pretax loss due to higher warranty and recall costs.

In international stock markets, indexes fell around the world after Wall Street's plunge on Wednesday. They fell 3.3 percent in Tokyo, 1.8 percent in Hong Kong and 1.2 percent in Paris, as concerns spread over companies' ability to meet earnings growth expectations and over possible central bank action on interest rates.

Japan's Nikkei 225 index fell to its lowest closing level since April as the yen's strengthening against the U.S. dollar continued to hurt stocks of the country's exporters. The yen rose on speculation that the Bank of Japan would soon raise interest rates, with its next policy meeting set to end on July 31.

Chinese stocks fell as investors questioned the central bank's decision to cut further key interest rate after several similar moves earlier this week.

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AP Business reporters Yuri Kageyama and Matt Ott contributed to this report.