Dow Jones rises over 200 points as U.S. stocks recover from two-day selloff ahead of Big Tech earnings

What’s driving markets

U.S. stocks Thursday were shrugging off weakness from earlier this week as investors continued to react to comments from Fed Chair Jerome Powell made during Wednesday’s press conference, while awaiting more big-tech earnings due out after the market closes.

Both factors are very likely to continue driving sentiment for the rest of the week, along with economic data on the labor market.

Investors expressed disappointment after Powell said on Wednesday that a rate cut in March was “not the most likely case or the base case,” but traders in the federal-funds futures market still saw an even greater certainty of rates falling at the subsequent Fed meeting in May, according to the CME FedWatch Tool.

“It’s very much a case of train delayed, not cancelled, at this point,” said Steve Clayton, head of equity funds at Hargreaves Lansdown. However, he added that investors could be disappointed if they see signs of inflation reaccelerating in the coming months.

See: New York Community Bancorp triggers steepest regional-bank stock swoon since Silicon Valley Bank collapse

Traders are also keeping a wary eye on the regional banking sector after shares in New York Community Bancorp
NYCB,
-9.04%
plunged as the lender highlighted difficulties in commercial real estate. The SPDR S&P Regional Banking ETF
KRE
was slumping 3.6% on Thursday, bringing its year-to-date decline to nearly 9%, according to FactSet data.

Richard Farr, chief market strategist at Merion Capital Group, said these incidents could be a sign that issues with regional banks are reemerging after the Fed announced the end of the bank term funding program, which it put in place following the collapse of Silicon Valley Bank and two other U.S. lenders back in March last year.

“For basically a year, the Fed has been masking problems at the banks, meanwhile, deposits at small commercial banks are still down, so it brings about the question of how health is the banking system, particularly smaller banks,” Farr said during an interview with MarketWatch.

Soon, investors will digest earnings from three more of the Big Tech stocks that have driven most of the S&P 500’s advance over the past year. Apple
AAPL,
+0.82%,
Meta
META,
+1.20%
and Amazon.com
AMZN,
+1.44%
will announce their results after Thursday’s close.

In U.S. economic data, the jobless claims data showed the number of Americans who applied for unemployment at the end of January rose to a nearly three-month high of 224,000, possibly a sign of some softening in what’s been an incredibly strong labor market.

Investors also received the the final reading of the S&P manufacturing PMI survey for January, which came in at 50.7, up from 47.9 in December, and higher than previously estimated. It marked the strongest improvement in the sector’s performance since September 2022. Shortly afterward, investors received an update from another closely-watched index that measures U.S. manufacturing activity. It rose to 49.1 in January from 47.1 in the prior month.

See: Jobs report forecast to show 185,000 workers hired. But beware the January effect.

On Friday, investors will receive the Labor Department’s nonfarm payrolls report for January, seen as a marquee economic report.

Companies in focus

• Peloton Interactive Inc.
  PTON,
  -22.39%
  shares fell 21.3% on Thursday after the company’s outlook implied more challenges ahead for the one-time pandemic darling.

• Honeywell International Inc.
  HON,
  -3.05%
  shares were off 2.7% despite the company reporting earnings in line with Wall Street’s expectations.

• Merck & Co. Inc.
  MRK,
  +4.22%
   saw it shares climb 3.8% after reporting strong earnings, powered by growth in its cancer and vaccine products.

• Plug Power Inc.
  PLUG,
  +3.60%
  shares jumped 5. Thursday after the company said it reached a milestone at its recently opened plant.

— Jamie Chisholm contributed