Stocks Jump In Spite of Surprising GDP Report…..

U.S. equities finished solidly higher, with tech shares leading the way, amid another day of robust earnings and economic data. The moves came despite an unexpected contraction in Q1 GDP, as well as the multitude of headwinds facing investors, including expectations of an aggressive Fed, China’s COVID disruption, persistent inflation, rising interest rates, and the rally in the U.S. dollar. Earnings season remained in full force, highlighted by results from Meta Platforms, Dow members McDonald’s and Merck, as well as Qualcomm. However, Ford and Dow component Caterpillar saw pressure on their results, while Teladoc Health plunged after severely lowering its full-year guidance. In other economic news, jobless claims dipped as expected, but the 4-week moving average rose. Treasuries were mostly lower to lift yields, and the U.S. dollar continued its run, while crude oil prices gained ground, and gold ended higher after a choppy trading session. Europe finished to the upside despite the continued headwinds and the U.S. GDP report, and markets in Asia were higher as the Bank of Japan held its benchmark interest rate unchanged but continued its bond purchases, and China urged infrastructure spending.

The Dow Jones Industrial Average rose 615 points (1.9%) to 33,916, the S&P 500 Index increased 104 points (2.5%) to 4,288, and the Nasdaq Composite jumped 383 points (3.1%) to 12,872. In moderate volume, 4.8 billion shares of NYSE-listed stocks were traded, and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil was $3.34 higher at $105.36 per barrel. Elsewhere, the gold spot price was up $7.70 to $1,896.40 per ounce, and the Dollar Index was up 0.7% at 103.62.

Initial jobless claims came in at a level of 180,000, for the week ended April 23, matching the Bloomberg consensus estimate, and versus the prior week’s upwardly-revised 185,000 level. The four-week moving average rose by 2,250 to 179,750, and continuing claims for the week ended April 16 dipped by 1,000 to 1,408,000, versus estimates of 1,399,000. The four-week moving average of continuing claims fell by 24,500 to 1,455,000.

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 contraction of 1.4%, versus estimates of a 1.0% gain after the unrevised 6.9% increase in Q4. Personal consumption rose by 2.7%, compared to forecasts of a 3.5% gain, and following the unadjusted 2.5% increase recorded in Q4. The Bureau of Economic Analysis said the decrease in GDP came from a decline in inventory investment—which was a major contributor to Q4 GDP growth—a widening trade deficit, and lower government spending, which more than offset the rise in personal consumption, nonresidential investment, and residential spending.

On inflation, the GDP Price Index came in at an 8.0% increase, above expectations of a 7.2% increase and compared to the unrevised 7.1% rise seen in Q4, while the core PCE Price Index, which excludes food and energy, moved 5.2% higher, below expectations of a 5.5% rise, and following the unadjusted 5.0% increase in Q4.

The April Kansas City Fed Manufacturing Activity Index fell more than expected but remained at a level depicting expansion (a reading above zero). The index dropped to 25 from March’s unrevised 37 reading, compared to forecasts calling for a decline to 35.

Treasuries were mostly lower after a recent rise that has seen yields trim gains that have been seen as of late as the markets continue to be uneasy amid a host of potential headwinds. Aggressive monetary policy tightening expectations have fostered the rise in yields, along with recent inflation data and comments from Fed officials. Fed Chairman Jerome Powell last week said a rate hike of 50 basis points (bps) was on the table for next week’s monetary policy decision, which would be the first time it raised rates in excess of 25 bps in over 20 years. Meanwhile Fed officials have suggested that the beginning of its balance sheet reduction program was also set to start soon, with a ramp-up to $95 billion in securities to “mature off” the balance sheet each month.

©2022 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.