U.S. stocks are rising Thursday following signals that the economy is growing much more powerfully than economists expected. The S&P 500 was 0.4% higher in morning trading and on track to set a record for a fifth straight day. The Dow Jones Industrial Average was up 173 points, or 0.5%, and the Nasdaq composite was 0.3% higher.
Quick Read
Key Points of U.S. Stock Market Rise and Economic Growth:
- Stock Market Gains: The U.S. stock market is experiencing an upswing, with the S&P 500, Dow Jones, and Nasdaq all showing gains in morning trading.
- IBM’s Strong Performance: IBM’s shares surged 11.6% after reporting better-than-expected quarterly profits, helping to boost the market.
- Tesla’s Decline: Tesla’s stock fell 9% following earnings and revenue that missed forecasts, along with warnings of slower sales growth.
- Strong Economic Growth: The U.S. economy grew at a robust 3.3% annual rate in the last quarter of 2023, surpassing economists’ expectations of 1.8%.
- Impact on Company Profits: This economic resilience is expected to drive corporate profits, a key factor influencing stock prices.
- Moderating Inflation: The report also showed signs of inflation moderating, raising hopes for the Federal Reserve to cut interest rates this year.
- Fed’s Rate Cut Expectations: Investors are anticipating the Federal Reserve might start lowering interest rates, reversing the trend of hikes in the past two years.
- Resilient Job Market: Despite an increase in unemployment claims, the job market remains strong, indicating economic resilience.
- Debate on Fed’s Rate Cuts: There is some skepticism about the extent and timing of the Fed’s rate cuts expected in 2024.
- Yield on 10-year Treasury Bonds: The yield on 10-year Treasury bonds decreased, signaling expectations for interest rate cuts.
- Other Earnings Reports: Several companies reported their latest financial results, with mixed outcomes. American Airlines and Southwest Airlines reported strong profits, while Humana’s stock dropped due to disappointing results.
- Global Market Movements: European markets showed modest movements after the European Central Bank’s decision to hold interest rates, while Asian markets, especially in China, saw significant gains.
The U.S. stock market’s rise, alongside positive economic growth and moderating inflation, reflects a cautiously optimistic outlook for the economy. However, there remains debate and uncertainty about the Federal Reserve’s future monetary policy actions.
The Associated Press has the story:
Wall Street rises after data on the economy stomps expectations
Newslooks- NEW YORK (AP) —
U.S. stocks are rising Thursday following signals that the economy is growing much more powerfully than economists expected.
The S&P 500 was 0.4% higher in morning trading and on track to set a record for a fifth straight day. The Dow Jones Industrial Average was up 173 points, or 0.5%, and the Nasdaq composite was 0.3% higher.
IBM was helping to lead the market with a gain of 11.6% after it reported a stronger profit for the latest quarter than analysts expected. It helped offset a 9% tumble for Tesla, whose earnings and revenue fell short of forecasts. The electric-vehicle maker also warned of notably lower sales growth this year.
But Wall Street’s main focus was on a report indicating the U.S. economy continues to steam ahead, demolishing last year’s forecasts for an imminent recession because of high interest rates.
The economy grew at a 3.3% annual rate in the last three months of 2023, according to an initial estimate by the U.S. government. That was much stronger than the 1.8% growth economists expected, according to FactSet. Such a resilient economy should drive profits for companies, which are one of the main inputs that set stock prices.
The report also gave encouraging corroboration that inflation continued to moderate at the end of 2023. Hopes are high that inflation has cooled enough from its peak two summers ago for the Federal Reserve to start cutting interest rates this year. That in turn would ease the pressure on financial markets and boost investment prices.
Such cuts would be a sharp turnaround from the prior two years of dramatic hikes to rates by the Fed, which was trying to get painfully high inflation under control.
“The headline data are the perfect mix of strong consumption and dropping inflation,” said Jamie Cox, managing partner for Harris Financial Group. “This is exactly what you want to see if you are running the Fed and want to move rates lower this year.”
A separate report showed that more U.S. workers applied for unemployment benefits last week, but the number remains low relative to history and indicates a still-resilient job market.
Of course, critics say traders on Wall Street are still overly optimistic about how many times the Federal Reserve will cut interest rates in 2024, and when it will begin. Traders are betting on a roughly coin flip’s chance for six cuts this year, which would be double what the Fed has indicated.
Wall Street also added to bets following the morning’s economic reports that the Fed would begin cutting rates as soon as March, bumping the probability closer to 50%, according to data from CME Group.
“The problem for traders is that rate cut expectations still have a ways to go to adjust to the reality that the Fed doesn’t need to be in a hurry to cut,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Treasury yields fell in the bond market on those expectations for rate cuts. The yield on the 10-year Treasury slipped to 4.13% from 4.16% before the report’s release and from 4.18% late Wednesday. In October, it was at 5% and its highest level since 2007.
Elsewhere on Wall Street, earnings season continued to pick up the pace with more than two dozen companies in the S&P 500 reporting their latest results late Wednesday or early Thursday.
American Airlines rose 7.9% after reporting profit for the latest quarter that was more than double what analysts were expecting. Southwest Airlines also flew past Wall Street’s forecasts and rose 1.5% following its report.
On the losing end of Wall Street, Humana tumbled 9.8% after the insurer reported worse results for the end of 2023 than expected. It also gave a forecast for the full year of 2024 that fell well below Wall Street’s estimate because of higher medical costs. Other insurers also dropped, including a 4% fall for UnitedHealth Group.
In Europe, stock indexes were moving modestly after the European Central Bank held interest rates steady.
In Asia, stocks jumped more in China after authorities made moves in hopes of bolstering financial markets and the economy. They rose 2% in Hong Kong and 3% in Shanghai but remain down for the year so far.
