Stocks Close Mixed After Fed Stress Tests, GDP

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published 29 June 2023

Stocks closed mostly higher Thursday after the latest round of economic data eased recession worries and financial shares jumped following the results of the Federal Reserve's annual stress test.

On the economic front, the final reading on gross domestic product (GDP) showed the U.S. economy grew at a 2% annualized pace in the first quarter, up from the previous reading of 1.3%. "The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to non-residential fixed investment and federal government spending," the report from the Bureau of Economic Analysis stated.

Elsewhere, data from the Labor Department showed that initial jobless claims fell by 26,000 last week to a seasonally adjusted 239,000, their lowest level since late May.

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While today's data fuels "optimism of a stronger and more resilient economy than previously thought," it also reinforces "the likelihood that the central bank will remain considerably more hawkish than investors anticipate," says José Torres, senior economist at Interactive Brokers.

Financial stocks boost Dow, S&P 500

Still, two of the three major indexes finished higher thanks to strength in financial stocks. The sector got a boost after the Fed released the results of its annual stress tests. These tests, which were created after the 2008 financial crisis, use hypothetical situations to measure how well the country's biggest banks could weather an extreme economic downturn. They also determine the amount of capital these big lenders can return to shareholders through stock buybacks and dividends.

Solid results this time around created tailwinds for the financial sector, with Dow stocks JPMorgan Chase (JPM, +3.5%) and Goldman Sachs (GS, +3.0%) being two of the biggest gainers Thursday.

As a result, the blue chip Dow Jones Industrial Average outperformed today, adding 0.8% to 34,122. The S&P 500 also gained ground, rising 0.5% to 4,396, while the Nasdaq Composite closed marginally lower at 13,591.

The best QQQ stocks

Despite today's slight decline, the Nasdaq is still headed toward an impressive first-half return, up 30% with one more session to go. This will mark the index's best 1H performance on record, according to Adam Turnquist, chief technical strategist for LPL Financial. And while there will likely be some bumps in the road going forward, "including the prospect of further rate hikes from the Fed, stubbornly high inflation, interest rate volatility and elevated recession risk," Turnquist says history suggests this strength could continue through the second half of the year.

We've mentioned in this space several times how investors can ride the momentum of the market, including scooping up the best tech stocks, the best growth stocks and – in the most talked-about trend on Wall Street right now – the best artificial intelligence (AI) stocks.

Another tack is to drill down on stocks in the Invesco QQQ Trust (QQQ), the exchange-traded fund that tracks the tech-heavy Nasdaq-100 Index (NDX). The fund has a long history of outperformance and more recently has seen strong returns thanks to surging demand for generative AI. Here, we take a look at nine of the best QQQ stocks for growth and innovation – and potential upside in the second half of the year. Check them out.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at Schaeffer's Investment Research. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.