The Dow Jones Industrial Average outperformed the broader market Thursday as big banks passed the Federal Reserve's annual stress test and an upwardly revised GDP reading eased some recession fears. The Dow climbed nearly 270 points, while the S&P 500 rose about 0.5% and the Nasdaq Composite closed at a negative flatline.
Here's how the market settled on Thursday:
S&P 500 Index (NYSE: SPY): +0.45% or +19.69 points to 4,396.55
Dow Jones Industrial Average (NYSE: DIA): +0.80% or +269.79 points to 34,122.45
Nasdaq Composite Index (NASDAQ: QQQ): -0.00% or -0.42 points to 13,591.33
Driving market moves, JPMorgan (NYSE: JPM), Goldman Sachs (NYSE: GS) and Wells Fargo (NYSE: WFC) each rose more than 3% Thursday after the central bank said all 23 institutions included in its annual stress test were able to maintain minimum capital levels and still issue loans to consumers and businesses in a severe recession scenario.
However, JPMorgan downgraded Citizens Financial (NASDAQ: CFG) to Neutral from Overweight following the stress test, with analyst Vivek Juneja noting that the bank will see a bigger increase in capital requirements.
″[This] will increase capital requirement to estimated 8.6% CET1 ratio which will further pressure profitability levels. Citizens has a lower cushion relative to peers above minimum CET1 requirements among our banks based on 3/31 levels and has continued to buy back stock in 2Q," Juneja wrote.
"In addition, Citizens is being pressured by high losses on its CRE loans due to high level of maturities of office CRE loans in 2023 and 2024 - it recently increased its outlook for 2Q NCOs to 40ish bp range. Citizens' increase in capital erosion in DFAST '23 was driven by increased loan loss provisions," Juneja added.
Market participants were also encouraged by a sharp upward revision to first-quarter GDP, according to the Bureau of Economic Analysis report Thursday. The report showed the U.S. economy grew at a 2% rate, rising from the previously reported 1.3% growth.
"The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to nonresidential fixed investment and federal government spending," the BEA said in a release.
In other economic news, weekly jobless claims fell to 239,000 for the week ending June 24, marking the lowest level since May. This is the first time unemployment claim declined after three straight weeks of increasing claims, signalling a still resilient labor market.
Elsewhere, Fed Chair Jerome Powell said during a conference held in Madrid that he does not expect a low-inflation environment of 2% in the near-term.
"You would have thought it would have wouldn't have been thinkable to have a 5% interest rate before the pandemic, and now the question is, is that tight enough policy?" Powell said. "A strong majority of [Federal Open Market Committee] participants think that we need to do more to get to a level of tight policy."
Looking ahead, the odds the central bank will raise its benchmark federal funds rate to 5.25% to 5.50% in its July meeting have increased to more than 89% on Thursday, according to the CME Fed Tracker tool, above the probability of roughly 75% a week ago.