Wall Street Rebounds with Small-Caps Leading Gains

Wall Street's main indexes rebounded on Thursday, recovering from a tech-triggered sell-off. Small-cap stocks led the gains, bolstered by stronger-than-expected GDP data. The Dow outperformed the major benchmarks. Investors reassessed underperforming sectors, while megacap stocks like Amazon and Apple saw modest gains. Markets are now eyeing upcoming economic data for further insights.

Wall Street's main indexes rebounded on Thursday, recovering from the previous day's tech-triggered sell-off, thanks to strong small-cap stock performance and better-than-expected GDP data.

The small-cap Russell 2000 jumped 2.3%, fully recouping Wednesday's losses, and the Dow led the major benchmarks in percentage gains. Investors reassessed recent exits from underperforming sectors, with Amazon.com, Apple, and Nvidia climbing between 0.8% and 1.2%.

Despite Alphabet's shares dipping 0.8%, Tesla rose 4.5%. Poor earnings for these and other tech stocks had earlier caused the Nasdaq and S&P 500 to experience their worst day since 2022. The U.S. economy's 2.8% expansion in the second quarter, along with subsiding inflation, supported market hopes for a September interest rate cut by the Federal Reserve.

"We've been calling for a Goldilocks recovery, expecting the economy to hold up, and this report shows that the economy is actually quite strong," said Brian Klimke, chief market strategist at Cetera Investment Management.

Meanwhile, expectations for a 25-basis-point cut by September increased to 85.8%, anticipating further cuts by December. Investors are now keenly watching for personal consumption expenditures price data on Friday to confirm these expectations.

Fears of over-stretched megacap stocks have spurred value investors to rotate into smaller-cap stocks and other sectors.

The S&P Small Cap 600 surged 2.2%. As of 2:02 p.m. ET, the S&P 500 added 31.81 points to 5,458.94, while the Nasdaq Composite rose 103.14 points to 17,445.55. The Dow Jones Industrial Average advanced 357.37 points to 40,211.24.

Among notable earnings-driven moves, IBM shares jumped 5.8%, boosting the blue-chip Dow, while American Airlines and Southwest Airlines also saw significant gains. Ford and Edwards Lifesciences faced sharp declines after missing profit estimates.