The Dow Jones Industrial Average (DJIA) posted a much needed 620 point gain yesterday after seven consecutive days of losses had cut over 2,000 points from the index to mark the largest single day gain in equities since 2008.
Federal Reserve commentary stating that they are now more inclined to hold off on a rate increase in September and strong domestic data on durable goods had investors confident that accommodative support from the Fed will continue while global markets sort themselves out. In overnight trading, we saw Chinese equity markets finally show some signs of life, as they posted a 5.3% gain to close above 3,000 after falling over 20% earlier in the week.
U.S. GDP Expands Faster Than Reported in Second Quarter
U.S. equities are rallying again this morning and the DJIA is currently up almost 300 points as revisions to Q2 GDP and consumption showed that the U.S. economy grew at a much higher pace that initially reported late last month.
Gross domestic product (GDP) for the second quarter was updated from the July print of 2.3% all the way up to 3.7% year over year and consumption was up from 2.9% to 3.1%. Primary components of this revision were from a 3.4% increase in business investment and a larger increase in government spending, up from +0.75% to 2.6%. State and local spending were also higher and final sales were up from 2.2% to 3.2%.
Economists had only predicted a GDP revision to +3.2%, so this creates a strong positive sentiment about economic growth and inflation. Personal consumption was revised up from 2.9% to 3.1%, right in line with expectations.
In other economic news, initial jobless claims were better than expected, down 6,000 to 271,000. This is lower than the 274,000 estimate, and again shows that the U.S. labor market continues to be rock solid. We get non-farm payrolls for July next Friday and a +210,000 print is currently projected.
Fed Symposium Starts Today
The Fed begins their symposium in Jackson Hole today and Vice Chairman Stanley Fischer is slotted to speak in Chairman Janet Yellen’s absence. Fed funds futures contracts have now dropped to a less than 20% chance that a rate hike is coming next month and interestingly, to less than a 50% chance that a hike is coming by December.
Considering the positive economic data seen this morning and better performance overnight in China, it will be interesting to see if the Fed changes their tune a bit after Bill Dudley’s accommodative comments Wednesday morning really helped to support yesterday’s stock rally.