Stocks started the day higher, as market participants brushed off concerns that the Federal Reserve might not be done raising interest rates and instead focused on strong earnings from Facebook parent Meta Platforms (META).
Investor sentiment also got a boost early on after a round of solid economic data eased recession worries. However, the optimism faded as the session wore on, with the Dow Jones Industrial Average snapping its longest win streak in more than three decades.
META stock jumped 4.4% today after the social media giant reported higher-than-expected second-quarter earnings of $2.98 per share. Revenue also beat estimates, jumping 11% year-over-year to $32.0 billion. Additionally, the company lowered its full-year capital expenditures forecast even as it continues to invest in "compelling opportunities," including artificial intelligence (AI) and the metaverse.
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"Meta is leveraging AI to effectively connect people over Facebook, Instagram, WhatsApp and Messenger," says Brian Mulberry, client portfolio manager at Zacks Investment Management. "[Its] focus on developing a strong footprint in the metaverse will drive prospects over the long term."
At the other end of the spectrum, Chipotle Mexican Grill (CMG) tumbled 9.8% after earnings. While the burrito chain reported a bottom-line beat for Q2, revenue of $2.51 billion and comparable sales growth of 7.4% fell just shy of analysts' estimates. Still, CFRA Research analyst Siye Desta upgraded CMG stock to Buy from Hold.
"Despite the comparable sales miss and higher avocado and beef prices, we think the reaction to CMG's earnings is overblown," Desta wrote in a note to clients. "While we expect higher food basket inflation in 2023, we see this moderating in 2024, with margins benefiting from CMG's recent tech initiatives and franchise deals."
Q2 GDP comes in higher than expected
On the economic front, the Bureau of Economic Analysis said gross domestic product (GDP) grew at an annual rate of 2.4% in the second quarter – more than economists were expecting and faster than the 2.0% growth rate seen in Q1.
Also underscoring the resilience of the U.S. economy was data from the Labor Department that showed initial jobless claims fell by 7,000 last week to 221,000 – their lowest level since February.
"Based on today's strong economic data, investors may jump to the conclusion that a rate hike is likely in September, but doing so may be a hasty decision," says José Torres, senior economist at Interactive Brokers. However, Torres reminds us that Federal Reserve Chair Jerome Powell yesterday said the central bank will take the totality of the economic data together in order to determine whether more rate hikes are needed, and "a few days of data are far short of the Fed's pledge to review the entire economic landscape."
At the close, the Nasdaq Composite was down 0.6% at 14,050. The S&P 500 (-0.6% at 4,537) and the Dow (-0.7% at 35,282) also ended in the red. Heading into today, the blue chip Dow had finished higher for 13 straight days, its longest win streak since 1987.
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