In the wake of revised economic growth data that unveiled a slower expansion of the US economy during the second quarter than previously projected, the stock market witnessed its fourth consecutive day of gains on Wednesday. The Standard & Poor’s 500 index (^GSPC) saw an uptick of approximately 0.4%, accompanied by a modest increase of 0.1% in the Dow Jones Industrial Average (^DJI), and a more substantial surge of 0.5% in the Nasdaq Composite index (^IXIC). This turnaround came after a fresh evaluation of US Gross Domestic Product (GDP) revealed that the economy had expanded by 2.1% during the second quarter, a decrease from the earlier official estimation of 2.4%.
The day’s stock market performance was significantly influenced by the release of the economic data pertaining to private-sector employment figures in August, as reported by ADP. These figures fell below expectations, raising concerns about the underlying strength of the labor market. These developments transpire against a backdrop of speculation regarding the potential trajectory of the economy and the Federal Reserve’s stance on interest rate adjustments.
The subdued growth in private-sector jobs aligned with the narrative of a possible “soft landing” for the economy. This concept is pivotal in shaping perceptions of whether the Federal Reserve will continue to raise interest rates, an action that could potentially impede economic growth. The stock market had already experienced gains on Tuesday, buoyed by indications of a slowdown in the labor market.
Market analysts are now setting their sights on the imminent release of the Personal Consumption Expenditures (PCE) inflation report on Thursday and the August jobs report scheduled for Friday. These two data points are regarded as pivotal in influencing the decision-making process of policymakers.
In light of the unexpectedly robust economic data earlier in the summer, Federal Reserve Chair Jerome Powell conceded last week that the anticipated economic cooling might not be as pronounced as initially anticipated. This admission fueled optimism among traders that the Federal Reserve could potentially refrain from pursuing further rate hikes. As a result, investors shifted their focus towards stocks and away from bonds.
Amidst these developments, the improved market sentiment propelled the S&P 500 index above its 200-day moving average (MA). This technical indicator holds considerable significance for traders, as it provides insights into potential shifts in market trends. The resurgence of confidence in stocks, despite lingering concerns about the broader economic landscape, bolstered shares of US banks, technology companies, and high-priced growth stocks.
However, investors remain cautious due to persisting headwinds from the ongoing trade tensions between the United States and China, along with indications of decelerating global economic growth. Despite these uncertainties, the upward trajectory in the stock market pushed the S&P 500 index to reclaim its all-time highs. This surge was underpinned by substantial gains in the Consumer Discretionary, Communication Services, and Technology sectors.
For the year, the large-cap index has recorded a remarkable surge of nearly 18%, while the Dow and Nasdaq Composite indices have experienced gains of 6.7% and just over 17%, respectively. Given the recent market dynamics, traders are closely monitoring the willingness of investors to reengage with equities. The market sentiment might swiftly pivot with the imminent release of additional US economic data later this week, potentially prompting a rapid shift in trends.
Source: Yahoo Finance
