U.S. stocks experienced an upward trend on Thursday, propelled by indications of a more robust economic growth than anticipated by economists.
In early trading, the S&P 500 marked a 0.4% increase, poised to set a record for the fifth consecutive day. The Dow Jones Industrial Average saw a 0.3% rise, gaining 113 points as of 9:40 a.m. Eastern time, while the Nasdaq composite showed a 0.4% uptick.
IBM played a significant role in leading the market with a 9.3% gain, surpassing analysts’ expectations for the latest quarter’s profit. However, Tesla experienced a 9.3% decline as its earnings and revenue fell short of forecasts.
The focal point on Wall Street remained on a report affirming that the U.S. economy is persistently advancing, defying last year’s predictions of an impending recession due to high interest rates.
According to an initial estimate by the U.S. government, the economy exhibited a 3.3% annual growth rate in the last quarter of 2023, nearly double the 1.7% growth anticipated by economists according to FactSet. This robust economic performance is expected to drive profits for companies, influencing stock prices.
The report also provided positive confirmation that inflation continued to moderate at the end of 2023. There is optimism that the Federal Reserve may start cutting interest rates this year, alleviating pressure on financial markets and bolstering investment prices.
This potential shift represents a stark contrast to the preceding two years, during which the Fed implemented significant rate hikes in an effort to control soaring inflation.
Jamie Cox, managing partner for Harris Financial Group, commented on the data, stating, “The headline data are the perfect mix of strong consumption and dropping inflation. This is exactly what you want to see if you are running the Fed and want to move rates lower this year.”
However, critics argue that Wall Street traders may still be overly optimistic about the frequency and timing of Federal Reserve interest rate cuts in 2024. Some traders anticipate around six cuts this year, double what the Fed has indicated.
Following the morning’s economic reports, there was increased speculation on Wall Street that the Fed might commence rate cuts as early as March, with the probability approaching 50%, according to data from CME Group.
Brian Jacobsen, chief economist at Annex Wealth Management, pointed out, “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.”
Amid these expectations for rate cuts, Treasury yields in the bond market fell, with the yield on the 10-year Treasury slipping to 4.13%. Meanwhile, the earnings season continued, with several S&P 500 companies reporting results. American Airlines and Southwest Airlines saw positive gains after exceeding analysts’ expectations, while Humana faced a 10.7% drop due to disappointing results and a conservative forecast for 2024. Other insurers, including UnitedHealth Group, also experienced declines.
In Europe, stock indexes displayed mixed performance after the European Central Bank maintained steady interest rates. In Asia, Chinese stocks surged after authorities implemented measures to support financial markets and the economy, with Hong Kong rising 2% and Shanghai climbing 3%, although still down for the year.
Featured Image: Megapixl © Alexandersikov
