Revised economic growth data revealing a slower expansion of the US economy in Q2 than initially projected did not impede the stock market’s bullish momentum, as stocks logged a fourth consecutive day of gains on Wednesday.
The S&P 500 index (^GSPC) advanced by approximately 0.4%, while the Dow Jones Industrial Average (^DJI) edged up by 0.1%. Concurrently, the Nasdaq Composite index (^IXIC) surged by 0.5%. These key benchmarks reversed modest losses earlier in the day, prompted by fresh revelations in the US Gross Domestic Product (GDP) report for Q2. The report indicated a growth rate of 2.1%, a revision downward from the prior official estimate of 2.4%.
In concurrence with the GDP data, the August private-sector job figures released by ADP failed to meet expectations, suggesting a degree of fragility in the labor market. These economic indicators play a significant role in shaping the current narrative surrounding the economy’s trajectory and have a direct bearing on the Federal Reserve’s interest rate policy. The prevailing hope for a “soft landing” of the economy has intertwined with speculations about the Fed’s next steps regarding interest rates and their potential impact on economic vitality.
Previous signals of labor market deceleration were instrumental in driving substantial gains in the major US stock indices on Tuesday. Analysts are keenly observing these developments as they set the stage for pivotal forthcoming reports, including the Personal Consumption Expenditures (PCE) inflation report on Thursday and the August jobs report on Friday. These reports are poised to wield considerable influence over policymakers’ strategic considerations.
The buoyant sentiment in the stock market, propelled by unexpectedly robust summer economic data, prompted Federal Reserve Chair Jerome Powell to acknowledge the possibility that the economy might not be cooling off as initially anticipated. This tempered expectation of a slowdown in rate hikes by the Fed, leading traders to favor stocks over bonds. This shift in sentiment pushed the S&P 500 index above its 200-day moving average (MA), a technical indicator closely monitored by traders for potential shifts in market trends.
Notably, this renewed confidence in the stock market appears incongruent with the underlying economic data, which points to a less robust economic landscape. This incongruity, however, spurred further appreciation in US bank stocks, technology shares, and high-priced growth stocks. Yet, despite this upward trajectory, concerns stemming from the ongoing US-China trade tensions and indicators of decelerating global growth linger in the minds of investors.
The upward surge in stocks propelled the S&P 500 index to reclaim its all-time highs, with notable gains observed in the Consumer Discretionary, Communication Services, and Technology sectors. Year-to-date, the large-cap index has surged by almost 18%, while the Dow and Nasdaq Composite indices have posted gains of 6.7% and just over 17%, respectively.
Despite revised Q2 economic growth data indicating a slower US expansion than expected, stocks notched a fourth day of gains on Wednesday. With an array of critical US economic data set to be released later in the week, the trend in the market could shift rapidly, influencing investment choices and overall market sentiment.
Source: Yahoo Finance
