GDP Revision And Jobs Data Shake Investor Sentiment In September

U.S. stocks closed with mixed results, as the DOW and S&P ended slightly higher, while the Nasdaq experienced a slight dip.

The week was marked by a wealth of data, with the GDP and jobs numbers taking centre stage.

The government reported that Gross Domestic Product (GDP) increased at an annualized rate of 2.1% in the last quarter, as revealed in its second estimate for the April-June period.

This marked a revision from the previously reported 2.4% growth rate just last month. Economists surveyed by Reuters had anticipated that GDP for the second quarter would remain unchanged.

The Personal Consumption Expenditures price index (PCE), excluding food and energy rose by 3.7%, a slight decreased from the previously reported 3.8% rate. This marked a significant slowdown from the 4.9% pace recorded in the January-March quarter.

Nonfarm payrolls added 187,000 jobs last month, following a rise of 157,000 in July. The market was expecting a rise of 170,000. In contrast, the unemployment rate rose to 3.8% from 3.5% in July.

With these data, the market is now expecting less than a 50% chance of another interest rate hike this year and is calling for a rate cut in May instead of June.

For the week, the Dow climbed 1.43%, the S&P gained 2.5% and the Nasdaq rose by 3.67%.

Here are the closing levels for Friday, September 1st, 2023: 

Last Change %Change
DOW JONES 34837.71 +115.80 +0.33%
S&P 500 4515.77 +8.11 +0.18%
NASDAQ 14031.81 -3.16 -0.02%
U.S. 10Y 4.18%
VIX 13.09 -0.48 -3.54%

This marks a promising start to September following a lackluster August.

It is worth noting the intriguing shift in market sentiment: historically, positive GDP data has triggered rallies, but this time, the market rallied in response to lower-than-expected GDP figures.

This reflects the current investor mindset, where “bad” economic news is viewed as “good.” Investors appear to be growing more optimistic as the end of the rate-hiking cycle nears, with the possibility of a near-future cut (potentially in May) further fuelling their enthusiasm.

From a technical perspective, both the S&P and Nasdaq have surpassed their 50-day moving averages, a positive sign. However, recent fluctuations may be attributed to increased volatility, so it is crucial to maintain these upward trends.

The moderation in jobs data could potentially lead the Federal Reserve to pause during their upcoming meeting, which is seen as a positive development. On the downside, discussions of a recession are resurfacing.

It will be intriguing to observe how the market responds if further signs of economic slowdown indeed materialize into the onset of a recession. Friday’s weak closing could be a cautionary signal for bullish investors who may be prematurely assuming that all is well once again.

Source: CBOE, Bloomberg

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.

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