After a choppy day, U.S. equities finished modestly higher to close out the trading week, as investors got another heavy dose of earnings results, and scrutinized a much stronger-than-expected read on Q1 GDP. Treasury yields were lower despite the data, and the U.S. dollar fell modestly, paring a recent run. Elsewhere, crude oil prices were sharply lower following a rally as of late and gold was higher.
The Dow Jones Industrial Average (DJIA) rose 81 points (0.3%) to 26,543, the S&P 500 Index was up 14 points (0.5%) to 2,940, and the NASDAQ Composite increased 28 points (0.3%) to 8,146. In moderate volume, 763 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil fell $1.91 to $63.30 per barrel and wholesale gasoline was down $0.03 at $2.05 per gallon. Elsewhere, the Bloomberg gold spot price increased $8.51 to $1,285.68 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.2% at 98.01. Markets were mixed for the week, as the DJIA fell 0.1%, the S&P 500 Index rose 1.2%, and the NASDAQ Composite advanced 1.9%.
The first look (of three) at Q1 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 3.2%, after the unrevised 2.2% expansion in Q4, and well above the 2.3% growth forecasted by Bloomberg. Personal consumption gained 1.2%, topping forecasts of a 1.0% rise, and following the unadjusted 2.5% increase recorded in Q4. The bulk of the stronger-than-expected growth came amid a boost in nonfarm inventories, rising exports and a drop in imports—which are a subtraction in the calculation of GDP.
On inflation, the GDP Price Index came in at a 0.9% rise, below expectations of a 1.2% gain and the unrevised 1.7% increase seen in Q4, while the core PCE Index, which excludes food and energy, moved 1.3% higher, south of expectations of a 1.4% increase, and following the unadjusted 1.8% advance in Q4.
Treasuries were higher despite the data, as the yield on the 2-year note fell 4 basis points (bps) to 2.28%, while the yields on the 10-year note and the 30-year bond decreased 3 bps to 2.50% and 2.92%, respectively.
The market reactions to the GDP report may have looked a bit counterintuitive, with stocks subdued, bond yields seeing noticeable pressure and the U.S. dollar failing to extend its recent rally. However, personal consumption slowed significantly from Q4, residential spending declined for a fifth-straight quarter, business investment decelerated and the inflation data was more subdued than expected. Also, one of the main contributors to the growth was the build-up in inventories, which could turn into drag if personal consumption, business investment and residential spending are not strong enough to chew through the increased stockpiles.
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