Wall St. Week Ahead: Even modest GDP bounce may support market

NEW YORK Fri Jul 25, 2014 8:53pm EDT

Traders work on the floor of the New York Stock Exchange March 17, 2014. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange March 17, 2014.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Even if data next week shows a mediocre rebound in U.S. economic growth, that might be enough to keep the stock market aloft at record highs and the Federal Reserve steadfast in its winding down of stimulus through bond purchases.

U.S. gross domestic product for the second quarter, due to be released Wednesday, is forecast to have grown 3.2 percent. Growth had shrunk 2.9 percent in the first quarter due to a harsh winter and spending cuts tied to the federal Affordable Care Act.

Still, some lackluster recent data on housing and capital spending, plus a mixed bag of second-quarter earnings, have raised the risk that even a moderate GDP bounce may fall short of expectations.

Indeed, Friday's disappointing report on durable goods orders in June spurred JPMorgan and Goldman Sachs to shave their second-quarter outlook by 0.1 percentage point to 2.6 percent and 3.0 percent growth, respectively.

While recent anxiety over conflict in Ukraine and Middle East has somewhat kept a lid on stock prices, it has not spooked investors enough to prompt them to dump equities for bonds and cash.

"The market has been resilient to these setbacks. They have taken bad news in stride," said Steve Weiting, global chief investment strategist with Citi Private Bank in New York.

The Standard & Poor's 500 index fell 0.4 percent on Friday after closing at a record high of 1987.98 on Thursday, while benchmark 10-year Treasuries yield was little changed on the week at 2.48 percent. [.N] [US/]

There has been steady improvement on the job front. Domestic jobless claims in the latest week fell to their lowest since early 2006, while monthly jobs gains have jumped by more than 200,000 in each of past five months, a level of strength last seen in the late 1990s.

While more Americans have returned to work, Federal Reserve Chair Janet Yellen told two Congressional panels earlier this month she remained worried about stagnant wage growth and a low inflation rate that is below the Fed's 2 percent target.

Those concerns have supported a notion that the Fed is in no hurry to move away from its near-zero interest rate policy.

On Friday, U.S. short-term interest rate futures implied that traders priced in a 53 percent chance of a Fed rate hike in June 2015 and a 75 percent chance of such a move a month later.

"We expect very little new information from the Fed next week. We have been given a clear map going into October," Wieting said.

The Federal Open Market Committee, the Fed's policy-setting group, is scheduled to announce whether it will further pare its bond purchases - currently at $35 billion a month - at 2:00 p.m. (1600 GMT) Wednesday.

(Editing by Bernadette Baum)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (6)
dennyboy1 wrote:
5 years of zero rates.qe1 2 3 most massive stimulas ever undertaken and after all of that we had some snow storms last winter as we always do and gdp collapsed.now we have terrorist taking over iraq and syria.there are sensative takes with iran over nukes worst fighting in some time in libya and russia has taken over crimea and they are destablizing ukraine.these are all strong holds for oil which could easily disrupt the flow.stocks at all time highs while incomes have been stagnant for years.47 million on food stamps .the point is i see what you mean if gdp comes up short stocks will go higher anyway.markets have been irrational for years and when reality sets in we will see the worst collapse in asset prices in history.

Jul 25, 2014 11:51pm EDT  --  Report as abuse
divinargant wrote:
It’s still on!!!! Bad news is good news for the market as we all await J.Yellin’s next call for any price targets she may be so kind as to point out to beef up our portfolios. Come on Jan..just give us a sector at least.

Jul 25, 2014 12:16am EDT  --  Report as abuse
nose2066 wrote:
It’s those near zero interest rates and the lack of alternative investments that are supporting the stock market. Oddly, China is suffering from too much investment – too many factories, too many empty buildings.

Jul 27, 2014 8:48am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.