Stocks Set for Another Record After GDP Report: Markets Wrap

(Bloomberg) — Stock futures signaled the market will climb to another record after data showed the economy is still robust despite the Federal Reserve still raising interest rates, boosting the outlook for corporate earnings.

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S&P 500 contracts advanced. The 10-year Treasury yield fell four basis points to 4.14%. The dollar has hardly changed. The euro fluctuated as the European Central Bank kept interest rates on hold and signaled that cuts are still a long way off.

The U.S. economy grew more than forecast in the fourth quarter, driven by robust consumer spending that helped cap the strongest year of growth since 2021. Gross domestic product rose by 3.3% on an annual basis. The key driver of growth – personal spending – rose 2.8%. A closely watched measure of underlying inflation rose 2%.

Wall Street Reaction to GDP:

“The US economy is still growing at a healthy pace, driven by consumer spending. A recession is still not out of the question and the Fed is still holding the economy in a tight spot. But as the days go by and the data improves, it actually looks like the Fed will achieve a soft landing with minimal damage to the economy.”

“The US economy rarely surprises negatively, and that remains the case: the fourth quarter GDP figures blew away estimates.” However, there was good news on inflation: the GDP price index fell well below estimates. These somewhat unclear numbers give the Fed pause, but with the consumer sector still particularly strong, there is room for disappointment over rate cuts soon.”

“Overall, it was a solid set of data that should sustain the Fed’s dovish intentions through at least the first quarter.”

The story goes on

“This GDP report wasn’t all rainbows and glitter. The increase relative to consensus was partly due to inventory levels ultimately having a small positive impact on overall GDP growth, while we expected a reversal in the final quarter following the large positive contribution in the third quarter. The bottom line is that a Fed rate cut in the spring is still the most likely outcome.”

“The headline data is the perfect mix of strong consumption and falling inflation. This is exactly what you want to see if you run the Fed and want to cut rates this year.”

“We think this is positive for both the economy and the stock market,” Larry Tentarelli said in the Blue Chip Daily Trend Report. “We expect the Fed's next rate move to be a rate cut, but our expectations for the first cut are in the May-June 2024 window.”

Company highlights:

• Shares of Tesla Inc. plunged after Elon Musk's attempt to urge investors to overlook slower sales growth failed.

• Boeing Co. is facing a major commercial setback after the U.S. Federal Aviation Administration froze planned production increases for its 737 Max plane, a move that will hurt the planemaker's growth ambitions at a time of rising demand and increased competition from Airbus SE destroys.

• American Airlines Group Inc. expects profit to beat Wall Street estimates this year as it benefits from strong demand for international flights and improved operating performance.

• Southwest Airlines Co. has again cut its growth plans for this quarter in response to rising costs and an industry-wide flight oversupply that is leading to falling prices.

• Alaska Air Group Inc. expects slower growth and a financial loss of $150 million this year after a mid-air accident grounded some of its Boeing Co. 737 planes.

• International Business Machines Corp. provided a positive outlook for revenue and cash flow in 2024, an optimistic signal about the pace of companies' technology spending even as the company expects job cuts.

• SK Hynix Inc. posted its first operating profit in more than a year and confirmed plans to build high-end storage capacity to meet AI demand, signaling hope for a long-delayed recovery in 2024.

• Comcast Corp. reported earnings and revenue that beat analysts' estimates as broadband customers spent more on more expensive services.

• Humana Inc. withdrew its 2025 profit target and forecast a 2024 profit well below Wall Street estimates as insurers are threatened by soaring medical spending and stricter government payment policies.

• Blackstone Inc.'s profit rose 4% in the final quarter of 2023 as President Jon Gray sees a turning point for private equity after one of the industry's worst years.

Important events this week:

• Japan Tokyo CPI, Friday

• Personal income and expenses in the USA, Friday

• The Bank of Japan will release the minutes of its monetary policy meeting on Friday

Some of the key moves in the markets:

Shares

• S&P 500 futures rose 0.4% at 9:06 a.m. New York time

• Nasdaq 100 futures rose 0.5%

• Futures on the Dow Jones Industrial Average rose 0.2%

• The Stoxx Europe 600 rose 0.1%

• The MSCI World Index has hardly changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.2% to $1.0858

• The British pound was little changed at $1.2724

• The Japanese yen rose 0.1% to 147.30 per dollar

Cryptocurrencies

• Bitcoin rose 0.4% to $39,906.02

• Ether fell 0.4% to $2,206.27

Tie up

• The 10-year Treasury yield fell four basis points to 4.14%

• The yield on 10-year German government bonds fell five basis points to 2.29%

• The 10-year UK government bond yield fell four basis points to 3.97%

raw materials

• West Texas Intermediate crude rose 1.4% to $76.16 a barrel

• Spot gold rose 0.3% to $2,019.60 an ounce

This story was produced with support from Bloomberg Automation.

– With support from Alexandra Semenova.

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