Dow, S&P 500 post biggest gains since January after earnings from Meta and other big-tech names

What’s driving markets

On the busiest day of earnings season, strong results from megacap technology names were helping to bolster stocks, despite concerns about the banking sector that helped send equities lower into the close on Wednesday.

Following robust results from Microsoft Corp. and Google parent Alphabet Inc. earlier in the week, it was Meta Platforms Inc.‘s turn to shine as the social media giant surpassed Wall Street expectations for earnings and revenue in a quarterly report released after the bell on Wednesday. Shares in the Facebook owner, which is the seventh biggest U.S.-listed company by market value, rose 13.9%.

Meanwhile, gross domestic product numbers showed the U.S. economy grew at a softer-than-expected 1.1% annual pace during the first three months of 2023. Wall Street economists had forecast an increase of 2%. Inflation rose at an annual 4.2% pace in the first quarter, compared with a 3.7% increase in the 2022 fourth quarter.

“U.S. stocks are rallying on strong earnings and on optimism that the economy will gradually soften and bring down inflation. The Fed will be able to move forward with one, perhaps two more rate hikes, but then that should be it,” said Edward Moya, senior market analyst at Oanda.

See: First-quarter GDP climbs at lackluster 1.1% pace as businesses retrench

Some market watchers worried the data could spell trouble ahead.

“This morning’s data was the worst of both worlds, with growth down [from the fourth quarter], and inflation up, said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

“The job market and consumer spending have held up remarkably well despite the Fed raising interest rates as high and as fast as they have…but the economy is slowing and inflation is not anywhere near the Fed’s target of 2%,” Zaccarelli said in emailed commentary.

Treasury yields were sharply higher on Thursday, adding to their advance after the release of the GDP report. Meanwhile, fed funds futures showed hardening expectations for a 25 basis-point interest-rate hike at the central bank’s meeting next week.

In aggregate, S&P 500 companies have reported earnings 7.9% above expectations, according to an update from Refinitiv released Wednesday evening. By comparison, the largest U.S. companies typically surpass Wall Street’s earnings expectations by 4.1% on average according to quarterly numbers going back to 1994.

Weekly U.S. jobless benefit claims data on Thursday showed a sharp drop in applications for benefits in the week ended April 22. Claims fell by 16,000 to 230,000, almost wiping out two weeks’ worth of rises.

Pending home sales fell in March for the first time since November, falling 5.2% month-over-month in March, compared with expectations for an increase. Earlier this week, data showed the S&P CoreLogic Case-Shiller 20-city house price index rose 0.1% in February, the first increase in eight months.

Companies in focus

• Caterpillar Inc.’s stock fell 0.9% after the construction-equipment manufacturer reported a rise in net profit and revenue in the quarter, better than analysts had expected.
• Shares in Merck & Co. Inc. rose 1.5%, after the drugmaker posted better-than-expected first-quarter earnings.
• Comcast Corp.’s stock advanced 10.3% after posting first-quarter earnings per share that beat estimates despite the broadcasting giant reporting a declining revenue of $29.7 billion from $31.0 billion in the same period last year and just above Wall Street expectations of $29.3 billion.
• Southwest Airlines Co.‘s stock declined 3.3%, after the airline reported first-quarter earnings and revenue that missed analyst’s expectations.

—Jamie Chisholm contributed to this article.