Medicare Agent News: Recession Delayed?

Thursday, January 26, 2023

Recession Delayed?

By Lawrence C. Strauss Thursday, January 26

Moving On Up. Stocks had a solid rally on Thursday following the release of data that showed continuing strength in the U.S. economy.

The S&P 500 gained 1.1%, snapping a two-day losing streak. It marked the highest closing value for the index since Dec. 2. Ten of the S&P 500's 11 sectors finished in positive territory, the lone exception being consumer staples.

The Dow Jones Industrial Average rose by 0.6%, its fifth straight session of gains. The tech-heavy Nasdaq Composite Index rose 1.8%, breaking a two-day skid.

GDP grew at a 2.9% rate in the fourth quarter, below the 3.2% result in the third quarter but above the FactSet consensus estimate of 2.3%.

It was another example of investors weighing the balance of good news and bad news. On the one hand, the U.S. economy remains durable and is not about to go into a recession, even if one is widely expected later this year or in 2024.

But the solid GDP performance also raises the question of how hawkish the Federal Reserve will be -- and for how long -- as it looks to bring inflation down further. The Federal Open Market Committee, which sets rate policy, is set to gather this coming Tuesday and Wednesday to consider its next rate increase, possibly 25 basis points.

Jack Denton of Barron's observed in a dispatch that the economic data was mixed, pointing out that "the report shows a complex picture, with both good news on inflation and unsettling data about the core components of economic growth."

His story can be read here.

In a research note Thursday, Don Rissmiller of Strategas wrote that "there’s little here to change the Fed’s plan to tighten & keep rates in sufficiently restrictive territory."

Rissmiller is expecting a rate hike of 0.25% next week, adding that "We remain concerned about a U.S. recession (50% odds in the next year & 75% in the next 2 years)."

In a statement, Vanguard's Investment Strategy Group said that “a persistent consumer pushed the U.S. economy to a strong fourth quarter," while "solid GDP growth of 2.9% alongside a still-strong labor market will keep rate-hike pressure on the Federal Reserve."

The bond market, though, didn't have a big reaction to the GDP news. The 10-year U.S. Treasury note settled at 3.491%, up about 3 basis points.

Elsewhere, Southwest Airlines reported a fourth-quarter loss of 38 cents a share, excluding special items. The widespread storms in the U.S. that hit around the holiday season wreaked havoc on Southwest's operations.

"We were impacted by rolling storms to an extraordinary degree," CEO Robert Jordan told analysts during the company's earnings call on Thursday. "We experienced gridlock in many of our largest airports, along with a high frequency of short-notice cancellations."

The stock closed at $35.70, down a little more than 3% on the day. My colleague Callum Keown wrote more about the airline's earnings report here.

Tesla was a standout on the day. Its stock rose 11%. On Wednesday evening, it reported better-than expected results. Barron's Al Root has more here on the electrical vehicle maker.