The Dow Jones rose 450 points after strong GDP data, as investors faced a "hard hit" from the US Fed's Powell. Gross domestic product has seen growth in the last quarter, but it has largely been driven by inventory. Stocks posted strong gains on Thursday morning, finding support after reading much stronger than expected fourth-quarter economic growth and Federal Reserve Chair Jerome Powell's hint that the central bank is planning to rate several rates after recovering from weakness in the previous session. This year's hikes.
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| The Dow Jones rose 450 points after strong GDP data |
What's going on
The Dow Jones Industrial Average was up + 0.16%, 458.43 points, or 1.3%, at 3,4626.52, after rising 600 points in early session highs.
The S&P 500 SPX rose -0.21% to 56.28 points, or 1.3%, to 4,406.21 points.
The Nasdaq Composite Index traded up -0.62% at 109.24 points, or 0.8%, at 13,651.36.
On Wednesday, the Dow Jones fell 0.4% and the S&P 500 fell 0.2%, giving stocks gains during Powell's press conference, while the Nasdaq Composite posted small gains.
What drives the market
United States. The economy accelerated towards the end of 2021 before the late Crowd of Omicron, the fourth quarter grew at an annual rate of 6.9% as consumers spent more and business recovered. According to a Wall Street Journal survey, economists expect GDP to grow 5.5% in the fourth quarter after a slowdown of 2.3% year-on-year in the third quarter.
Although strong economic data may raise expectations that the Fed will be more courageous in tightening policy, economists point out that stock gains were the main driver, without which the economy would have expanded by only 1.9%. Furthermore, increasing inventories can be read as a sign that supply chain constraints are easing, which will reduce inflationary pressures.
"The bright side of today's report is that the supply side of the economy has begun to keep pace with demand, as evidenced by the creation of large inventories in the fourth quarter," wrote Anita Markoska and Thomas Simmons, economists at Jefferies. "While inventory levels are still low, they are clearly skewed, which will start easing the pressure on inflation fairly soon."
While a statement from the Federal Open Market Committee on Wednesday afternoon did not surprise investors, Powell's comments echoed that sentiment.
The head of the central bank did not dispel the notion that the Fed could raise to every meeting this year and spoke of the need to be "smart". He added that "there is a lot of room for growth without compromising jobs."
Seema Shah, chthe ief strategist at Principal Global Investors, described the observation as "a real blow to the teeth of the market" about its ability to raise prices without hurting the job market.
Need to know: The S&P 500 needs to be reduced by another 20% to attract the Fed's attention, says Ray Dalio's Bridgewater CIO.
On Thursday, the Federal Reserve Fund Futures showed that the Fed's chances of raising the rate by five 25 basis points at the end of the year increased from 22% on Tuesday to about 33%, according to the CME FedWatch tool.
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Powell declined to rule out the possibility of a half-percentage point increase in the rate instead of a quarter-point during the hiking cycle.
"The stock market did not take kindly to Powell's efforts to maintain maximum flexibility during Wednesday's session," Stephen Gallo, head of FX strategy at BMO Capital Markets, said in a note.
The two-year Treasury TMUBMUSD02Y yield of 1.175% was 1.036%, five minutes before the Fed's decision, and 1.1711% on Thursday.
Read: These 11 arguments will determine the 'giant battle' between bull and beer in the stock market as the Fed raises rates
Lawrence Dyer, head of U.S. interest-rate strategy at HSBC, said Powell's remarks that his forecast for core PCE inflation since December has risen about 20 basis points, equivalent to a 30 basis point increase in the expected Fed fund rate.
He said that by the end of 2022, Fed fund futures are slightly higher than that, which means that returns could be reversed in the next few days.
In other U.S. data, durable goods orders fell more than the expected 0.9% in December, while initial claims for U.S. unemployment benefits fell 30,000 last week to 260,000, suggesting that Omicron-related labor market turmoil has begun to subside.....
According to the monthly index published by the National Association of Realtors, pending home sales fell 3.8% in December.
Investors were also reacting to the flood of revenue, while Apple Inc. AAPL + 0.33% result after closing hours.
Focus company
Electric car maker Tesla, TSLA, released a report late Wednesday that showed higher-than-expected profits but cautioned about supply chain constraints on microchips. Shares fell 6.9%.
Shares of McDonald's Corporation fall. MCD, down -0.40%, down 0.8% fast-food giant reported fourth-quarter earnings and revenue that exceeded expectations.
Lam Research Corporation LRCX, -7.39%, which manufactures microchip equipment, said the state of the supply chain had deteriorated by the end of December. Shares fell 6.3%.
How other assets are traded
TMUBMUSD10Y 10-year Treasury yield fell 1.789% 4 basis points to 1.801%. Yield and credit prices go against each other.
The ICE US Dollar Index DXY, + 1.31%, a measure of the currency against the basket of six major competitors, jumped 1.4%, reaching its highest level since July 2020.
Oil futures CL.1 fell -0.70% after hitting their highest level in more than seven years on Wednesday, the US benchmark fell 0.2%. GC00 Gold futures, down -2.06%, down 1.8%, just below the $ 1,800 mark per ounce.
In European stocks, the Stoxx Europe 600 SXXP + 0.65% rose 0.7%, while the London FTSE 100 UKX, + 13%, rose 1.3%.
Shanghai Composite SHCOMP -1.78%, down 1.8%, Hang Seng HSI down -1.99%, down 2%, and Japan's Nikkei 225 NIK -3.11%, down 3.1%.
