Slower GDP Boosts Stocks

By Nicholas Jasinski |  Thursday, October 28 Slowing. Investors and analyst continued to parse through a tsunami of earnings releases today, during the peak of third-quarter reporting season. Results have been beating forecasts by a wide margin, as most companies have shown themselves capable of navigating through a period of rising costs and supply chain challenges. It's the economy in the third quarter that was short of expectations. The  Bureau of Economic Analysis gave its first estimate of U.S. gross domestic product data for the July-August-September period this morning. The economy grew at a 2.0% seasonally adjusted annualized rate, short of the 3.5% consensus forecast among economists surveyed by FactSet. That was also meaningfully slower than the second quarter's 6.7% growth rate. The fact that third-quarter GDP would slow markedly from prior quarters wasn't a surprise to anyone paying attention. A Delta-variant Covid-19 surge weighed on the recovery in services spending, while supply-side issues for businesses and consumers have delayed production and consumption. The good news is that economists' average forecasts have GDP growth in the coming few quarters making up a lot of that shortfall, as supply-chain bottlenecks ease and Covid trends improve. And companies just showed they weren't hurting even in a 2% GDP-growth quarter. So stock investors saw the big picture today, and bid up the market. The S&P 500 and Nasdaq Composite indexes hit record highs today, up 1% and 1.4% respectively. It was the Nasdaq's first all-time high since Sept. 7. The Dow Jones Industrial Average ticked up 0.7%, for its third-highest finish ever. All 11 sectors in the S&P 500 finished in the green today, but growth areas of the market generally topped value and cyclical groups. The bond market has taken notice of economic-growth concerns, even if stocks haven't. That has manifested itself in a flatter U.S. Treasury yield curve of late. Jacob Sonenshine explains what that means for stocks here. Meanwhile in Washington today, the Biden administration published details of a new framework for Democrats' social spending bill, now totaling some $1.75 trillion. In are extended child tax credits, universal pre-K, and rebates for clean energy purchases. Gone are free community college funding, stricter climate policies, and a billionaires tax. To pay for the spending, the new framework would levy a 15% minimum tax on companies with more than $1 billion in profits, and add a 1% surcharge on corporate stock buybacks. Taxpayers making more than $10 million would have to pay a 5% rate and an additional 3% surtax on incomes above $25 million. Barron's Sabrina Escobar has more reporting on the latest details in the bill.

 

DJIA:  +0.68% to 35,730.48 S&P 500: +0.98% to 4,596.42 Nasdaq: +1.39% to 15,448.12 The Hot Stock: Teradyne +11.3% The Biggest Loser: Northrop Grumman -7.6% Best Sector: Real Estate +1.5% Worst Sector: Communication Services +0.3%