Dow dipped all of 1, advancers modestly ahead of decliners & NAZ gained 137. The MLP index was flat at 240 & the REIT index was off 5 to the 381s on higher yields. Junk bond funds were little changed & Treasuries had heavy selling which raised yields substantially. Oil went up 1+ to the high 79s & gold dropped 26 to 1943.
AMJ (Alerian MLP Index tracking fund)
The US economy showed few signs of recession in Q2, as GDP grew at a faster-than-expected pace during the period, the Commerce Dept reported. GDP increased at a 2.4% annualized rate for the Apr-Jun period, better than the 2% estimate. GDP rose at a 2% pace in Q1. Consumer spending powered the solid qtr, aided by increases in nonresidential fixed investment, gov spending & inventory growth. Perhaps as important, inflation was held in check thru the period. The personal consumption expenditures price index increased 2.6%, down from a 4.1% rise in Q1 & well below the estimate for a gain of 3.2%. Consumer spending, as gauged by the dept's personal consumption expenditures index, increased 1.6% & accounted for 68% of all economic activity during the qtr. That did make a pullback from the 4.2% increase in Q1 but still showed resiliency amid higher interest rates & persistent inflation. In the face of persistent calls for a recession, the economy showed surprising resilience despite a series of Federal Reserve interest rate increases that most economists & even those at the central bank expect to cause a contraction. Growth hasn’t posted a negative reading since Q2-2022, when GDP fell at a 0.6% rate. That was the 2nd straight qtr of negative growth, meeting the technical definition of a recession. However, the National Bureau of Economic Research is the official arbiter of expansion & contractions, & few expect it to call the period a recession. Today's report indicated widespread growth.
GDP grew at a 2.4% pace in the second quarter, topping expectations despite recession calls
Treasury yields rose as investors considered the outlook for interest rates after the Federal Reserve's latest interest rate decision & a stronger-than-expected GDP report. The 10-year Treasury yield rose nearly 5 basis points to 3.899% & the 2-year Treasury yield jumped more than 3 basis points to 4.864%. Bond yields move opposite of price & a basis point is equal to 0.01 percentage points. Yields extended their modest morning gains after the Commerce Dept reported that GDP product grew at a 2.4% annualized rate in Q2. The forecast had estimated 2.0% growth. The strong economic reading could be seen as a sign that the Fed can keep hiking, though the report also showed softening prices that seem to support the recent drop in inflation readings. Many investors have been hoping that the Fed will end its rate-hiking campaign soon as concerns about elevated rates leading the economy into a recession have taken hold. The central bank chief yesterday also addressed the outlook for inflation, indicating that despite easing pressures from rising prices, there’s still “a long way to go” before inflation returns to the Fed's 2% target. The last consumer price index came in at 3% on an annual basis.
Treasury yields gain as GDP report shows faster-than-expected growth
The Dow Jones Industrial Average notched its 13th straight day of gains yesterday, a feat not seen since 1987 when Ronald Reagan was in the White House. The benchmark added a modest 82 points (0.23% to hit the milestone) which is now at the high since Feb 2022. The Dow, which is up just 7% YTD, is playing catch up to the NAZ the S&P 500, which have gained 35% & 19%, respectively, over the same period. The gains are a positive sign for the broader market. The Dow is 3.5% from its record close of 36,799 on Jan 4, 2022. The milestone also came after the Federal Reserve raised interest rates, as expected, by 25 basis points to the highest in 22 years. Chair Jerome Powell, in his press conference, declined to elaborate on when another hike or pause may occur. "We're looking at the current data in GDP and we're seeing strong spending. We're seeing a strong economy. And it's made us confident that we can go ahead and raise interest rates. Now, for the third time since the March events. And it seems like the economy is weathering this well. But of course, we're watching it carefully and expect to continue to do that," he said.
Dow's winning streak best since 1987
Growth by the GDP in Q2 is more of an ordinary kind of number, rather than exceptional. Dow opened with a gain of 100, but reflection on the potential for more rate hikes cooled that enthusiasm. The rise in Treasury yields was to be expected given yesterday's increase by the Fed & the Dow continues to be heavily overbought after its recent rally.
Dow Jones Industrials
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