Dow drops more than 200 points after the biggest U.S. GDP contraction on record

The Dow Jones Industrial Average and S&P 500 closed lower on Thursday as investors digested a record-setting drop in U.S. economic activity. Those losses were kept in check, however, as shares of major tech companies rose ahead of earnings. 

The 30-stock Dow slid 225.92 points, or 0.8%, to end the day at 26,313.65. The S&P 500 dipped 0.4% to 3,246.22. The Nasdaq Composite outperformed, rising 0.4% to 10,587.81.

Data from the U.S. government released Thursday showed gross domestic product plunged by a record 32.9% in the second quarter. The number was not as bad as feared, however, as economists surveyed by Dow Jones had expected a 34.7% decline.

Meanwhile, U.S. weekly jobless claims came in at 1.434 million, roughly in line with estimates. However, continuing claims, or those who have been collecting for at least two weeks, totaled 17.018 million, up from about 16 million last week.

"The stock market has to look forward and most economic data looks backwards," said David Bahnsen, chief investment officer of The Bahnsen Group. "Investors should be prepared for a choppy process of data digestion, but not be surprised that the market feels the future is better than the present and that unprecedented stimulus and liquidity exist to drive valuations."

Thursday's data sent the benchmark 10-year Treasury yield lower to around 0.54%, putting pressure on bank stocks. JPMorgan Chase, Goldman Sachs and Bank of America all fell at least 1.5%. Citigroup dropped 3.1%.

"What you're seeing in the data and in the market reaction is the roll-off of the extra unemployment insurance is a pretty big deal," said Tom Hainlin, global investment strategist at Ascent Private Capital Management. "There's a lot of expectation for Congress to come through."

"That's why those recovery sectors, energy, financials and materials, are the ones that are off today," he said.  The S&P 500 materials sector dropped nearly 2% while energy shares slid 4%. The financials sector fell 1.8%.

Democrats and Republicans have made little progress toward a new coronavirus relief package as a weekly benefit $600 for those unemployed due to the pandemic is set to expire on Friday.  

Apple, Amazon, Alphabet and Facebook, representing nearly $5 trillion in market capitalization, were all set to report after the bell. All four stocks rose slightly during regular trading. 

The Big Tech reports come after each stock has posted massive year-to-date gains. Facebook and Alphabet are both up more than 14% in 2020. Amazon has surged 65.2% in that time and Apple is up 31% this year.

Thursday's moves follow a session that saw major averages posting solid gains after the Federal Reserve kept the overnight U.S. rate in a range between 0% and 0.25%. The central bank noted that while the economy has recovered slightly, activity and employment remain "well below their levels at the beginning of the year." Fed Chairman Jerome Powell added the central bank will keep an accommodative stance until the economy has "weathered" the effects of the coronavirus pandemic.

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