Dow added 48, advancers 4-1 & NAZ slid back 59. The MLP index hovered in the 322s & the REIT index jumped 7 to the 404s. Junk bond funds were mixed & Treasuries had limited buying which lowered yields. Oil edged up in the 73s & gold shot up 53 to a new record at 2847.
Dow Jones Industrials
The US economy grew slower than expected in the 4th qtr, according to new data. The Commerce Dept's Bureau of Economic Analysis released its advance estimate for 4th qtr gross domestic product (GDP), which found the US economy grew at an annual rate of 2.3% in the 4th qtr, which runs from Oct-Dec. The forecast had expected the economy to grow at a 2.6% rate in the qtr. The 4th qtr's 2.3% growth was slower than the 3.1% GDP growth recorded in the 3rd qtr. GDP growth was driven primarily by growth in consumer & gov spending, but was partly offset by a decrease in investment. Consumer spending grew 4.2%, with increases in both services & goods, up from 3.7% in the 3rd qtr & 2.8% in the 2nd qtr. Gov spending was up 2.5%, slower than the 5.1% increase in the 3rd qtr. Business investment declined 5.6% compared with the 3rd qtr, which was relatively flat at 0.8%. Investment in equipment declined by 7.8% while investment in structures dipped by 2.2% – which was partly offset by a 5.3% rise in residential investment & a 2.6% uptick in intellectual property products. Disposable personal income increased by 2.8%, an acceleration from 1% & 1.1% in the 2nd & 3rd qtrs, respectively. Business investment were $896B in the 4th qtr, down from $936B in the prior qtr & personal saving as a percentage of disposable personal income was 4.1%. The BEA's report also included an estimate for real GDP for 2024, which came in as an increase of 2.8%, down slightly from the 2.9% rise recorded in 2023.
US economy grew slower than expected in fourth quarter
Microsoft (MSFT), a Dow stock, shares dropped after issuing weak current-qtr guidance. The software giant topped fiscal 2nd-qtr estimates,
posting EPS of $3.23 on $69.6B in revenue. That
surpassed the EPS of $3.11 & $68.8B forecast. The
decline came as CFO Amy Hood said the company
expects revenues for the current qtr to be $67.7 - $68.7B, falling short of the $69.8B forecast. Revenue
grew 12.3% year over year, the slowest growth since the middle of
2023. MSFT also posted a slowdown in growth in its Azure &
other cloud services revenues. The segment was up 31%, down from 33% in
the prior qtr. Many analysts stood by the technology behemoth despite the disappointing guide & Azure slowdown. CEO Satya Nadella said that DeepSeek's R1 model
is currently available thru GitHub & the company's Azure AI
Foundry. It will also eventually be accessible on Copilot+ PCs, he added. The stock tumbled 27.53 (6%).
Microsoft stock slumps 5% on disappointing revenue outlook
Treasury yields moved lower as economic data showed slower-than-expected growth for the US in the 4th qtr. The 10-year Treasury yield was lower by 3 basis points at 4.524%. Meanwhile, the 2-year Treasury yield was down less than 2 basis points at 4.211%. 1 basis point is equal to 0.01% & yields & prices move in opposite directions. The move in yields came as the Commerce Dept's gross domestic product report was weaker than expected (see above). Yesterday, the central bank’s Federal Open Market Committee left its overnight borrowing rate unchanged at 4.25% - 4.50%, in a move that investors had been anticipating after 3 consecutive cuts since Sep 2024. Policymakers noted in left its overnight borrowing rate that “inflation remains somewhat elevated” & “the unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid.” They added that the central bank would need to see “real progress on inflation or some weakness in the labor market before we consider making adjustments.” At a press conference following the decision, Fed Chair Jerome Powell said he will not be responding to Pres Trump's demands for immediate interest rate cuts, & that he had “no contact” with Trump since the comments were made last week. “I’m not going to have any response or comment whatsoever on what the president said,” Powell added at his press conference. “It’s not appropriate for me to do so.”
10-year Treasury yield slides after weaker-than-expected GDP
After the Federal Reserve stood pat on interest rates as expected, investors have turned to parsing earnings reports, & in particular, the first wave of results from tech companies that have driven broader stock market gains. Faith in Big Tech was put to the test after DeepSeek's cheaper AI model rattled assumptions about the likelihood of a payoff, the focus was on the rationale for their massive AI investments.
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