Stocks advance on GDP report
Wall Street rose for a second straight session Wednesday after the government’s latest gross domestic product reading showed the economy was in better shape than expected, easing concerns that growth was moderating too sharply. The Dow Jones industrials rose 90 points.
Investors were upbeat after a series of reports, including GDP, pointed to the likelihood of an economic soft landing after more than two years of interest rate hikes that ended in June. Major stock indexes held on to gains throughout the session even as oil prices moved to their highest levels in two months.
Providing ballast was the Commerce Department’s report that GDP expanded at a 2.2 percent annual rate, topping its previous estimate of 1.6 percent and economists’ projections for a 1.8 percent gain. Meanwhile, the Federal Reserve said in its beige book report that most areas of the U.S. had moderate economic growth in the first few weeks of November as consumer spending grew.
Wall Street appears to be in a consolidation phase after its big rally the past two months. The fact that it has rebounded rather than extending Monday’s plunge, when the Dow fell 158 points, indicates many investors want to keep buying although they’re watching closely for any signs of economic trouble.
“The most recent data confirms the basic picture we’ve seen for some months is that it looks like we’re heading toward a soft landing, inflationary pressure is easing, and that the housing market hasn’t collapsed as some feared,” said Ed Keon, chief investment strategist with Prudential Equity Group. “Soft landings, when we’ve had them, are great for stocks.”
The Dow rose 90.28, or 0.74 percent, to 12,226.73. The Dow rose 14.74 Tuesday.
Broader stock indicators also advanced. The Standard & Poor’s 500 index was up 12.76, or 0.92 percent, at 1,399.48, and the Nasdaq composite index added 19.62, or 0.81 percent, to 2,432.23.
The pair of economic reports also indicated the housing slump hasn’t been too much of a drag on the economy, and offset a Commerce Department report released Wednesday that showed new home sales in October suffered their largest drop since July.
Another beneficiary of the healthy economic snapshot was the dollar, which rebounded from a 20-month low against the euro but was mixed against other major currencies. Gold prices moved higher.
Data that suggests the Fed is keeping a handle on the economy rattled the fixed-income markets. Bonds declined, with the yield on the benchmark 10-year Treasury note higher at 4.52 percent from 4.50 percent late Tuesday. Signs of economic strength keep pressure on policy makers to continue lifting interest rates.
All of this economic news comes one day after Fed Chairman Ben Bernanke said U.S. growth will pick up next year. He said Fed policy makers, who meet again Dec. 12, would not hesitate to raise interest rates further if inflation remained a risk.
“The comments by Bernanke were really to help keep the dollar up there,” said Alexander Paris, president of Chicago-based Barrington Research. “Really, the dollar has been the most disturbing factor out there since it began to fall last Friday.”
The Russell 2000 index of smaller companies was up 9.34, or 1.21 percent, at 784.16.
Advancing issues outnumbered decliners by almost 3 to 1 on the New York Stock Exchange, where volume came to 1.56 billion shares compared to 1.59 billion at the same point on Tuesday.