Thursday’s closing price of stocks was sharply negative as investors continued to process the effects of the Big Tech companies’ poor earnings announcements and the increasing bond rates.
Leading the losses was the tech-heavy Nasdaq (^IXIC), which fell 1.8%, and the S&P 500 (\GSPC), which fell 1.2% and almost entered correction territory. There was a decline of about 250 points, or around 0.8%, in the Dow Jones Industrial Average (^DJI).
After posting their worst one-day performance in eight months on Wednesday, tech stocks are still under pressure. In a world where Treasury rates are rising, worries about values being too high are becoming stronger.
The US economy grew at its quickest rate in over two years, according to the most recent GDP, which caused the benchmark 10-year yield (^TNX) to drop 11 basis points to trade close to 4.85% on Thursday. Earlier this week, the yield momentarily rose above 5%.
The US economy grew at an annualised pace of 4.9% during the third quarter, according to the Bureau of Economic Analysis’s advance estimate of GDP for the quarter, which was faster than consensus projections.
The positive statistics is in spite of the Federal Reserve’s slogan of higher interest rates for longer periods of time, which hasn’t worked to restrain American consumers. The Federal Reserve will decide on interest rates again on November 1.
A change in monetary policy is starting to occur at other central banks. After ten straight rate hikes, the European Central Bank maintained interest rates constant on Thursday for the first time in more than a year.
According to the ECB, the record-high deposit rate of 4% will remain in place. The bank stuck to its earlier advice to pursue a stable policy going forward.
Thursday’s closing price of stocks was sharply negative, with the tech-heavy Nasdaq Composite (^IXIC) plummeting 1.8% and the S&P 500 (^GSPC) falling 1.2%, both of which were approaching correction territory. Roughly 0.8%, or more than 250 points, were lost by the Dow Jones Industrial Average (^DJI).
The US economy grew at its quickest rate in over two years, according to the most recent GDP data, which caused the benchmark 10-year yield (^TNX) to drop 11 basis points and trade near 4.85%.
Although stocks recovered slightly from previous session lows, they were still down sharply. The late afternoon falls were driven by the tech-heavy Nasdaq Composite (^IXIC), which dropped 1.5%. The Dow Jones Industrial Average (^DJI) plummeted 0.5%, or more than 150 points, while the S&P 500 (\GSPC) fell 0.9%, almost into correction territory.
The benchmark 10-year yield (^TNX) dropped 11 basis points to trade close to 4.85% as it continued to plummet. The US economy is expanding at its highest rate in over two years, according to the most recent GDP estimate, which prompted the drops.
Over the last three months, despite a high interest rate environment, consumer spending increased and the US economy grew at its strongest rate in over two years.
However, experts say that the spike in activity does not always indicate that the economy is picking back up speed.
Lead US economist Michael Pearce of Oxford Economics commented, “It is now unlikely a recession begins before year end, as we have in our baseline.” He cited the 4.9% annualised gain in GDP in the third quarter and the robustness of the monthly statistics through September. “However, much of that strength was driven by a sharp fall in the saving rate, a strong rise in government spending and a jump in inventory accumulation, all of which won’t be sustained.”
The economist forewarned, saying the most of that weakening would probably manifest in the first half of 2024. “There are also signs that monetary tightening is weighing on investment spending, and with financial conditions still tightening, we still expect a sharp downturn over coming quarter.”
Gregory Daco, chief economist at EY, concurred, stating in a note on Thursday that “we do not expect such strong momentum will be sustained, while these signs of economic strength will fuel speculations that the economy is reaccelerating.”
The economist stated, “The recent rapid tightening of financial conditions spurred by surging bond yields represents a material headwind for business investment and consumer spending.” Real GDP growth is projected to veer below trend for a few quarters due to a combination of “tighter credit conditions, the restart of student loan payments, certainty regarding the lagged impact of monetary policy, and a fragile global economic backdrop.” After an anticipated 2.4% rise in 2023, we predict that real GDP will grow by a subdued 1.4% in 2024.”
The GDP statistic will be one of the information the Federal Reserve looks at when it meets next week to discuss policy.
“While this is not good news for the Federal Reserve, the fact that the disinflationary process continued on a year-earlier basis could take some pressure off,”