Wall Street stocks oscillate after US GDP rebounds

Posted on October 27, 2022Comments Off on Wall Street stocks oscillate after US GDP rebounds

Wall Street stocks struggled for direction in choppy trading on Thursday after a fresh GDP report showed that the world’s largest economy expanded in the third quarter.

The S&P 500 was up 0.3 per cent by late morning in New York, while the technology-heavy Nasdaq Composite was down 0.5 per cent.

Those moves came after data showed the US economy expanded in the third quarter, having contracted for the first six months of the year. Gross domestic product increased 2.6 per cent on an annualised basis between July and September, compared with economists’ expectations of a rise of 2.4 per cent.

In government bond markets, the yield on the 10-year US Treasury note dipped 0.06 percentage points to 3.95 per cent, down from a high of more than 4.3 per cent earlier this month. Yields move inversely to prices.

The US Federal Reserve has raised interest rates aggressively this year in an attempt to curb inflation, with extra-large increases of 0.75 percentage points at each of its past three meetings — taking its target range to between 3 per cent and 3.25 per cent. Concerns have intensified that the US central bank and its international peers will turn the screws on monetary policy into a protracted slowdown.

Jim Paulsen, chief investment strategist at The Leuthold Group, said fears of a recession in the US were slowly overtaking concerns that the Fed had lost control of inflation.

“The force behind [this month’s] moves higher for stocks is the idea the tightening cycle is about over,” said Paulsen. “The Fed may not have blinked yet but maybe the bond market has and that seems to be enough for equities.”

Investors have also been watching the latest flurry of quarterly corporate earnings closely for signs of strain from rapid price growth and rising borrowing costs, against an increasingly challenging economic backdrop.

Shares in Facebook owner Meta tumbled more than 22 per cent on Thursday after the company reported another quarter of declining revenues, joining other Big Tech groups in warning that an economic slowdown was hitting its advertising businesses.

Google parent Alphabet and Microsoft had endured smaller share price falls in the previous session after weak third-quarter results.

Elsewhere, Europe’s Stoxx 600 index added 0.1 per cent, trimming an earlier decline.

The European Central Bank on Thursday raised interest rates by 0.75 percentage points in its latest effort to tackle inflation, pushing its deposit rate to 1.5 per cent — the highest level since 2009.

Inflation in the euro area hit 9.9 per cent in the year to September, while S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, indicated business activity in the eurozone this month suffered its biggest contraction for almost two years.

Luca Paolini, chief strategist at Pictet Asset Management, said the ECB could be tempted to slow the pace of increases in December if the Fed followed a similar path, even though short-term inflationary pressures are greater in Europe than they are in the US.

“Falling natural gas prices give the ECB some justification for slowing the pace of tightening [later this year] and the bank would rather go big now to prove it’s serious about inflation,” said Paolini. “By December, the main worry will not be inflation, but the decline in economic activity.”

The yield on the 10-year German Bund fell 0.1 percentage point to 2 per cent. The Italian 10-year yield dropped by a more pronounced 0.17 percentage points to 4.29 per cent as the debt instrument’s price climbed.

The dollar strengthened 0.6 per cent against a basket of six peers, while sterling declined 0.4 per cent against the greenback to $1.158.

In Asian equity markets, Hong Kong’s Hang Seng index added 0.7 per cent, while Japan’s Topix was down 0.7 per cent.

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