Stocks spent the session in the red on Thursday, after data showed that the US economy grew a little slower than economists expected. Gold and other precious metal sold off.
First, the scoreboard:
- Dow: 17,757.64, -21.88, (-0.12%)
- S&P 500: 2,089.47, -0.88, (-0.04%)
- Nasdaq: 5,074.89, -20.80, (-0.41%)
And now, the top stories on Thursday:
- The US economy grew slower than economists expected in the third quarter. The Department of Commerce reported the advance estimate of gross domestic product as 1.5% (1.6% expected). Many economists felt that excluding the correction in inventories, it was a good number. Consumer spending once again supported economic growth, as real consumer spending rose 3%. Government spending also contributed positively.
- BNP Paribas economists wrote to clients, “The fact that GDP data were weak because of inventories, when final demand was solid, will have encouraged the Fed to think the recent run of weak data is mainly due to an inventory cycle and helps to explain the surprising hawkishness of yesterday’s FOMC statement.”
- Gold and silver fell to four-week lows. In New York, gold dropped more than 2%, or $US30 an ounce, to as low as $US1,145.60. Silver fell 4%, less than $US1 an ounce, to about $US15.64. The metals continued a drop that started on Wednesday amid the FOMC’s policy statement that said a December rate hike was on the cards if inflation and labour market data improved.
- In separate statements, Pfizer and Allergan confirmed they were in merger talks. Reports yesterday indicated that Pfizer was pursuing a takeover of the Botox maker that would create the world’s largest pharma company. There’s no deal yet, and it looks like one would be about tax inversion. Pfizer CEO Ian Read told the Wall Street Journal that the current tax system was hurting the company. Acquiring Ireland-based Allergan would give Pfizer the chance to move its tax domicile to the country, which has a lower corporate tax rate.
- After China announced it was scrapping its one-child policy, shares of companies making infant formula, strollers, and so on went wild. Shares of Synutra International (which makes formula) surged 10%; Mead Johnson Nutrition (also makes formula) rose about 4%. Nomura analysts wrote to clients, “A significant uplift in the share price of China baby food exposed stocks is though, in our view, an overreaction. The market has in the past had a tendency to become overly excited about the implications on the policy relaxation in China …”
- Initial jobless claims rose by 1,000 to 259,000 last week, less than expected. The four-week average fell 4,000 to 259,250, dropping to the lowest level since December 1973. “The ongoing decline in continuing and initial claims is reassuring given the recent softness in employment gains as measured by the monthly employment report,” Barclays economists told clients.
- Pending homes sales fell 2.3% in September, worse than the 1% increase economists had expected. Compared to the prior year, pending homes sales were up 2.5%, less than expected. Realtor.com’s Jonathan Smoke said in a statement, “Global weakness, financial market uncertainty and stock market declines all weighed on home sales, but housing fundamentals remain very strong and this could have just been a temporary pause in this year’s growth in sales.”