Dow Jones ends over 300 points higher as S&P 500 rebounds from biggest drop in 3 months

See: Was stock market’s midweek dip a ‘one-day wonder’ or start of ‘decent pullback’?

What drove markets

A round of economic data Thursday may have helped U.S. stocks find their footing after the sharp pullback seen late in the previous session.

The Labor Department said first-time jobless claims rose by 2,000 to 205,000 in the week ending Dec. 16. Economists had forecast new claims in the week ending Dec. 16 to total 215,000.

U.S. third-quarter gross domestic product was cut to show annualized growth of 4.9% against an initial estimate of 5.2%, while the Philadelphia Fed’s activity index fell further into negative territory.

These economic data weren’t “earth-shattering numbers,” but they still proved that a cooling economy will keep the Fed on track to cut rates in the “not-too-distant future,” said Chris Larkin, managing director for trading and investing at E-Trade from Morgan Stanley, in emailed comments on Thursday.

Read: Four out of five industry sectors are overbought, say Citi strategists, as Morgan Stanley index turns negative

Exhilarated by expectations for Federal Reserve rate cuts by the first half of 2024, Wall Street sent stocks soaring hard and fast in the past week, with the S&P 500 less than 1% shy of its record set nearly two years ago.

However, stocks took a turn for the worse on Wednesday, snapping a nine-day win streak for the Dow and Nasdaq. While there wasn’t any clear fundamental trigger for the selloff, trading in derivatives known as zero-day-to-expiry options (0DTE) may have played a role, according to several market watchers. Overbought technical conditions and thin volume also were cited as likely factors.

Still, the selloff implies the year-end rally isn’t on solid footing, since fundamentals don’t justify the current level of stock market, said Don Calcagni, chief investment officer at Mercer Advisors.

With the S&P 500’s forward 12-month price-to-earnings ratio at 19.3 as of Thursday, investors are “overly rosy” in their expectations for 2024, and may not be able to rationalize these levels if the Fed doesn’t cut interest rates by much as many expect, Calcagni told MarketWatch on Thursday.

See: Why stock-market bulls say ’embrace weakness’ after biggest stumble in 3 months

In other economic data, the leading economic index fell 0.5% in November, falling for the 20th month in a row, and continued to signal a recession ahead.

Friday morning brings the release of the November personal consumption expenditure index, which includes the Fed’s favored inflation gauge.

Companies in focus

• Shares of Nio Inc.
  NIO,
  +10.81%
   finished 4.7% higher on Thursday as investors appeared to shrug off a report in The Wall Street Journal that the Biden administration is considering raising tariffs on electric vehicles made in China. 

• Micron Technology Inc.
  MU,
  +0.66%
  shares jumped 8.6% after the chip maker’s results came in better than expected. US. chip stocks rose broadly, with Intel 
  INTC,
  +5.21%
  up 2.9% and Nvidia
  NVDA,
  +0.92%
  rising 1.8%.

• Shares of Carnival Corp.
  CCL,
  -1.69%
  gained 6.2% after the cruise operator reported fiscal fourth-quarter results that beat expectations and provided an upbeat full-year profitability outlook.

Steve Goldstein contributed