Manchin's reversal, Fed ups federal funds rate and more: Thursday's 5 things to know

Here are five key things that could impact Thursday's trading.

MANCHIN'S REVERSAL: U.S. Sen. Joe Manchin, D-W.Va., agreed Wednesday to a slimmed-down Democratic bill that includes an extension of a consumer tax credit for buying electric vehicles, a reversal for the moderate senator.

The extension will allow automakers to continue to offer $7,500 in tax credits for new electric car purchases and $4,000 for used electric vehicles for the first time. 

Amid more than a year of negotiations on the "Build Back Better" bill, Manchin said earlier this month he was only willing to support a bill that didn’t include any climate provisions. He said he would only support a reconciliation bill that includes a provision to lower prescription drug prices and a two-year extension of subsidies for the Affordable Care Act.

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Manchin was explicit in a mid-July statement that lawmakers should focus on the "economic realities the country faces to avoid taking steps that add fuel to the inflation fire" and "put political agendas aside."

Just last month, Manchin told Fox Business he didn’t think the electric vehicle tax credits were a good idea. 

"If you have a product that's in demand and most people have to wait for that product, why would you give a discount in order to encourage someone to pay for it or buy it back?" Manchin told reporter Grady Trimble. "On the other hand, we want to make sure that we do develop this industry, but I'm concerned about EVs more from the standpoint of being totally reliant on a foreign supply chain. Right now, most of the batteries, computer chips, all this is coming from China. So what we're doing is going to hold ourselves basically totally captive by China or foreign supply chains."

Before July, Manchin has previously said he was amenable to climate provisions in the bill.

GDP DECLARATION ‘POSSIBLY INACCURATE’ Politico’s Ben White questioned whether a bad quarterly GDP number on Thursday would mean the U.S. is heading for a recession.

Anticipation for the GDP report is high because if data shows a contraction, that would be the second consecutive quarter with negative growth, which is how a recession is defined. White published an analysis of the potential news that, according to the publication’s Twitter account, could be "possibly inaccurate."

"Set your alarms: Tomorrow we get the first, possibly inaccurate and certain to be revised reading of U.S. economic performance in the second quarter of this deeply weird economic year — one metric to measure if we're in a recession," Politico’s Twitter account read.

The article continued to make light of the threat of recession in its follow-up paragraph.

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"We tease. But just a bit. Because it is actually a big deal whether the reading shows the economy, as measured by gross domestic product, grew by a touch or declined by a hair in the second quarter. If it’s the latter, which many but certainly not all economists expect, it would be the second straight quarter of shrinking GDP. That’s one, though not the only definition of, (cue scary music) RECESSION!" White wrote.

Like other media pundits, White argued that the traditional definition of recession, described as two consecutive quarters of economic contraction, is not the "official" description of the term.

White wrote, "This is where it gets a bit confusing for the non-econ-obsessed, so hang with me until we get to the politics. Because technically the White House would be correct. Two declines in a row is one classic hallmark of recession. But as I’ve noted in this space before, there is no official definition of recession in the U.S. beyond a broad decline in economic activity spread over time."

GDP, UNEMPLOYMENT REPORTS: Two important economic reports will be released Thursday morning.

The first is the (advance) estimate of second-quarter GDP. The Refinitiv forecast is for a seasonally adjusted annual growth rate of 0.5%. That would follow a surprise contraction of 1.6% in the first quarter, the first since second-quarter 2020 at the height of the pandemic lockdowns. If the GDP number comes in below zero, it would be the second consecutive quarter of negative economic growth, meeting a popular and widely followed definition of a recession. A recession isn’t official until the National Bureau of Economic Research declares it. 

In the second important report, the Labor Department will release its count of new claims for unemployment benefits for last week, depicting a jobs market that while still tight, is cooling off. 

Expectations are for 253,000, up slightly from the previous week and marking another 8-month high.

Continuing claims, which track the total number of workers collecting unemployment benefits, are expected to slip to 1.380 million (the numbers are reported with a two-week lag). For context, continuing claims fell to a 52-year low of 1.306 million in the week ending May 21.

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EARNINGS, EARNINGS, EARNINGS: Thursday marks a busy day for second-quarter earnings, with no less than four Dow members reporting.

Merck and Honeywell will report in the morning, while Apple and Intel report in the afternoon. 

Amazon and Apple will be the big focus when the two tech titans post their April-through-June results.

For Amazon, earnings per share are expected to plunge 82% from a year ago to $0.13, with revenue rising 5% to $119.09 billion. 

Other earnings announcements Thursday will include digital media player-maker Roku, steel producer U.S. Steel, Comcast, oil and gas refiner Valero Energy, aerospace and defense company Northrop Grumman, financial services firm Mastercard and carrier Southwest Airlines to name just a few.

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TAMING INFLATION: U.S. stocks rallied Wednesday afternoon, extending earlier gains, after the Federal Reserve signaled it would move aggressively to tame inflation and the central bank's chairman argued that the nation's economy hadn't yet slipped into a recession. 

The S&P 500 rose 102.56, or 2.6%, to 4023.61. The Dow Jones Industrial Average advanced 436.05, or 1.4%, to 32197.59. The Nasdaq Composite had its biggest one-day percentage gain in more than two years, surging 469.85 points, or 4.1%, to 12032.42. 

The U.S. central bank lifted its federal-funds rate by 0.75 percentage point, to a range between 2.25% and 2.5%, and said in a statement it is "strongly committed to returning inflation to its 2% objective." 

"The Fed is prepared to continue until they have price stability in lowering inflationary expectations," said Quincy Krosby, chief equity strategist at LPL Financial. "That's what the market wants. Inflation remains and the question now is how fast is it pulling back." 

Meanwhile, Fed Chairman Jerome Powell told reporters he doesn't think the U.S. is in a recession. 

"Two-point-seven million people hired in the first half of the year – it doesn't make sense that the economy would be in recession," Powell said. 

Stocks rallied earlier on Wednesday after mega-cap technology companies Microsoft and Google parent Alphabet reported earnings that were better than investors anticipated.