Dow Finally Pulls Ahead After Vicious GDP Imbalance Rattles Bond Markets

Journalist:
Sam Bourgi @hsbourgi
April 26, 2019

By CCN: After struggling for much of the session, the Dow and broader U.S. stock market pulled ahead Friday even as stronger-than-expected GDP data exposed significant imbalances in the world’s largest economy. Those imbalances rattled bond markets, sending yields lower.

Dow Rallies; S&P 500, Nasdaq Hit New Highs

All of Wall Street’s major indexes struggled for direction earlier in the day, which reflected a tepid pre-market for Dow futures. After dropping by as much as 70 points, the Dow Jones Industrial Average reversed course to gain 81.25 points, or 0.3%, to 26,543.33.

After a tepid start, the Dow Jones Industrial Average breaks higher in afternoon trade. | Chart via Yahoo Finance.

After initial weakness, the broad S&P 500 Index of large-cap stocks traded in positive territory, gaining 0.5%% to 2,939.88. That was a new record close for the index.

The technology-focused Nasdaq Composite Index also settled in record territory, climbing 0.3% to 8,146.40.

U.S. GDP Growth Blows Past Estimates, with a Few Important Caveats

U.S. economy gathers pace in the first quarter, but concerns about weak consumer spending threaten the stock market’s outlook. | Source: REUTERS/Jonathan Ernst

The U.S. economy gathered pace in the first quarter, as rising exports and higher inventory investment offset a sharp slowdown in consumer spending.

Gross domestic product (GDP) – the broadest measure of economic growth – expanded at an annual rate of 3.2% in the first quarter, the Department of Labor reported Friday. That was the strongest start to a year since 2015 and well above the median estimate calling for 2% growth.

Investors were initially hesitant about the report because it showed that consumer spending grew just 1.2% between January and March, down from 2.5% in the fourth quarter. Consumer spending account for more than two-thirds of economic output.

A big bulk of the quarterly gains, namely 1.03 percentage points, was attributed to net exports. A rise in net exports means imports declined. Depending on who you ask, this can be a good thing or a bad thing.

On the one hand, it suggests that U.S. trade policy is working favorably for exporters; on the other hand, declining imports often points to a slowdown in domestic consumption and a deceleration in the overall economy.

That apprehension was reflected in the bond market on Friday as Treasury yields fell. The benchmark 10-year yield fell to 2.502% from 2.536% on Thursday. Yields fall when bond prices fall.

The U.S. dollar also fell against a basket of competitor currencies as traders sought refuge in gold. The DXY dollar basket fell 0.3% to 97.95.

Click here for a real-time Dow price chart.

Last modified (UTC): April 26, 2019 16:14

Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com