Markets were mixed as GDP data came in better than expected, the Federal Reserve’s latest monetary policy decision had no surprises, and the situations in Gaza and Ukraine remained unsettled.
First, the scoreboard:
- Dow: 16,883.28, -28.8, (-0.2%)
- S&P 500: 1,970.90, +1, (+0.05%)
- Nasdaq: 4,465.23, +22.4, (0.5%)
And now, the top stories on Wednesday:
1. The Bureau of Economic Analysis released its initial estimate for second quarter GDP, which showed that the economy expanded 4% on an annualized basis during the quarter. First quarter GDP was also revised up to contracting 2.1%, better than the 2.9% contraction that the last reading indicated. Following the report, Chris Rupkey, chief economist at Bank of Tokyo Mitsubishi UFJ said, “Apart from the inventories issue, is it a real 4% or is it a mirage? The consumer is back… Things can’t go too far wrong if the consumer is out shopping. It was a cold winter and heating and housing expenditures added 0.7 to growth in the first quarter and now subtracted 0.4 in the second quarter… Car sales added 0.4 to the 4.0% GDP and should have with car sales shooting higher to a 16.9 million normal annual rate of sales in June. If the Fed had car sales on the dashboard they would raise rates right now.”
2. The Federal Reserve’s Federal Open Market Committee released its latest monetary policy decision, with the FOMC taking another $US10 billion off its monthly asset purchases and keeping interest rates between 0%-0.25%. The FOMC’s announcement, which was not accompanied by a press conference from Fed Chair Janet Yellen, showed that the Committee believes, “a range of labour market indicator suggests that there remains significant underutilization of labour resources.” Following the Fed’s announcement, Steven Englander at Citi said, the Fed is, for the first time, giving strong indications that it’s moving towards hitting both its labour and inflation targets.
3. While the headline GDP number far outpaced the 3% that was expected by Wall Street economists, two concerns were lurking below the surface. Primarily, as BI’s Rob Wile noted, a large build in inventories added 1.66% to Q2 GDP. Inventories are typically one of the most volatile components of GDP, and the BEA itself noted that buildups in inventories can signal future cutbacks in production, while inventory shortages could signal future production increases. The GDP report also contained a number of revisions to past reports, notably a reduction in GDP for the period spanning 2011-2013 to 2% growth from 2.2%.
4. Also in economic news, ADP’s private payroll report for July showed that U.S. companies added 218,000 jobs in July, fewer than the 230,000 expected by economists and down from 281,000 in June. “The July employment gain was softer than June, but remains consistent with a steadily improving job market,” said Moody’s Analytics’ Mark Zandi.
5. Shares of SodaStream surged 10% after the company, which makes at-home soda brewing units, reported second quarter earnings and revenue that were better than expected. SodaSteam, however, said it was lowering its U.S. soda maker sales projections for the second half of the year.
6. Former Chairman of the Federal Reserve Alan Greenspan was in the news today after saying in an interview on Bloomberg TV that a “significant” stock market correction has to come. Greenspan also said that the economy is “running out of buffer,” saying that should a major geopolitical conflict spring up, our economy doesn’t have the resources to find new potential funding, specifically for the defence sector.
7. Today marks the deadline for Argentina to either pay its lenders, which include hedge fund manager Paul Singer, or face defaulting on its debt. As of the market close in New York, the situation remained unresolved.