Stocks rally on slowdown in GDP
A sharp slowdown in economic growth propelled stocks higher Friday as the government’s latest gross domestic product reading fed hopes for an end to interest rates hikes. The major indexes finished the week with a solid advance.
Investors bid shares higher after the Commerce Department said GDP growth tailed off by more than half to a 2.5 percent annual rate during the second quarter. The weaker-than-expected reading reinforced beliefs that the Federal Reserve may not need to hike interest rates further.
Wall Street’s optimism overcame signs of rising inflation. The GDP report also said core consumer prices — excluding energy and food — surged 2.9 percent last quarter, while employment costs rose a stronger-than-expected 0.9 percent.
While investors have been spooked by any hint of higher prices, they likely set aside the GDP’s inflation component because recent reports have shown a more benign trend, said Jeff Kleintop, chief investment strategist for PNC Financial Services Group. But he was uncertain if an anxious market would continue building on these gains.
“The catalysts needed to move this market one way or the other probably won’t come until the fourth quarter,” Kleintop said, citing events such as a definitive stance on interest rates, corporate guidance in a slower economy and developments in political conflicts overseas.
The Dow gained 119.27, or 1.07 percent, to 11,219.70. The Dow jumped 230 points on Monday and Tuesday, and posted its best weekly point gain since May 2005.
Broader stock indicators also advanced. The Standard & Poor’s 500 index added 15.35, or 1.22 percent, to 1,278.55, and the Nasdaq composite index climbed 39.67, or 1.93 percent, to 2,094.14.
Advancing issues outpaced decliners by more than 4 to 1 on the New York Stock Exchange.
The economic data lifted bonds, with the yield on the 10-year Treasury note sliding to 4.99 percent from 5.04 percent late Thursday. The dollar extended its losses to the yen; gold prices rose to more than $645 an ounce.
Oil prices plunged as energy traders took profits from recent gains on worries about political tension in the Middle East and Nigeria. A barrel of light crude lost $1.24 to $73.30 on the New York Mercantile Exchange.
GDP growth was expected to slow from a brisk 5.6 percent annual rate in the first quarter, but the number came in below economists’ forecast of 3 percent.
Although the Labor Department’s employment cost index topped estimates for an 0.8 percent increase, Kleintop said investors perhaps were more focused on the longer-term downward trend in the amount companies were paying for employee benefits.
Overseas, Japan’s Nikkei stock average added 1.07 percent. Britain’s FTSE 100 rose 0.77 percent, Germany’s DAX index gained 0.82 percent, and France’s CAC-40 was higher by 0.55 percent.
On the NYSE, consolidated volume of 2.57 billion shares trailed the 2.81 billion shares that changed hands Thursday.
The Russell 2000 index of smaller companies rose 14.34, or 2.09 percent, to 700.03.