Dow Struggles Despite Strong GDP Growth
All of Wall Street’s major indexes struggled for direction on Friday, which reflected a tepid pre-market for Dow futures. After dropping by as much as 70 points, the Dow Jones Industrial Average edged up 14 points, or 0.1%, to 24,476.75.
After a tepid start, the Dow Jones Industrial Average breaks higher in afternoon trade. | Chart via Yahoo Finance.
After initial weakness, the broad S&P 500 Index of large-cap stocks traded in positive territory, gaining 0.1% to 2,929.83. Most of the 11 primary sectors reported gains, led by consumer staples. Energy was the biggest drag on growth, falling 1.9%.
The technology-focused Nasdaq Composite Index pared losses to settle down 0.1% at 8,114.05.
U.S. GDP Growth Blows Past Estimates, with a Few Important Caveats
U.S. economy gathers pace in the first quarter, but concerns about weak consumer spending threaten the stock market’s outlook. | Source: REUTERS/Jonathan Ernst
The U.S. economy gathered pace in the first quarter, as rising exports and higher inventory investment offset a sharp slowdown in consumer spending.
Gross domestic product (GDP) – the broadest measure of economic growth – expanded at an annual rate of 3.2% in the first quarter, the Department of Labor reported Friday. That was the strongest start to a year since 2015 and well above the median estimate calling for 2% growth.
Investors were initially hesitant about the report because it showed that consumer spending grew just 1.2% between January and March, down from 2.5% in the fourth quarter. Consumer spending account for more than two-thirds of economic output.
A big bulk of the quarterly gains, namely 1.03 percentage points, was attributed to net exports. A rise in net exports means imports declined. Depending on who you ask, this can be a good thing or a bad thing.
On the one hand, it suggests that U.S. trade policy is working favorably for exporters; on the other hand, declining imports often points to a slowdown in domestic consumption and a deceleration in the overall economy.
That apprehension was reflected in the bond market on Friday as Treasury yields fell. The benchmark 10-year yield fell to 2.502% from 2.536% on Thursday. Yields fall when bond prices fall.
The U.S. dollar also fell against a basket of competitor currencies as traders sought refuge in gold. The DXY dollar basket fell 0.3% to 97.95.
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