Weaker-than-Expected Growth Dampens Inflation Fears, Boosts US Stock Market

Strategic Insights -

A surprise weaker-than-expected second-quarter growth rate of 3.8% in the US GDP, announced by the Commerce Department, has sparked a rally in the US stock market. Analysts had predicted a 4.2% increase, but the actual figure, coupled with revised inventory buildup and reduced consumer spending, has led to a reevaluation of the country's economic growth trajectory. This has resulted in a sharp increase in the Dow Jones index, with a gain of over 61 points, and a rise in bond prices, sending the yield on the 30-year bond down to 7.47%.

Key Takeaways:

  • The revised second-quarter GDP growth rate of 3.8% is lower than the expected 4.2% and the preliminary figure of 3.7%.
  • The inventory buildup of $56.3 billion is substantial, but analysts expect growth to slow down due to reduced consumer spending.
  • Bond prices rose, leading to a decrease in the yield on the 30-year bond to 7.47% from 7.53%.
  • The positive outlook on inflation and the stability of the bond market have contributed to the dollar gaining strength against the Japanese yen and the German mark.
  • Analysts such as Gail Dudack expect the Dow to reach 4200 by the end of the year.
  • The revised GDP figures have caught many short-sellers off guard, leading to a surge in buying and fueling the rally.
  • Carol Stone, senior economist at Nomura Securities International, forecasts that GDP in the next quarter will grow less than 3%.
  • The Federal Reserve's pre-emptive campaign against inflation, including a fifth rate hike, has been allayed by subsequent economic data, contributing to the market's positive sentiment.

Statistics:

  • The Dow Jones index climb of over 61 points to reach 3891.
  • The growth rate of 3.8% in the second quarter, lower than the expected 4.2% and the preliminary figure of 3.7%.
  • The inventory buildup of $56.3 billion ( pounds 37.5 billion).
  • The yield on the 30-year bond decreased to 7.47% from 7.53%.
  • The dollar's gain against the Japanese yen and the German mark.
  • The Dow Jones index gain of 70.90 points on Wednesday to 3846.73.
  • The Federal Reserve's fifth rate hike this year.

Sources:

  • "By MARK TRAN in New York", WEAKER THAN EXPECTED GROWTH, Financial Times, No date given (likely published in the late 1980s).