Marketbites: Dow Snaps Historic Streak
Portfolio Manager Commentary:
The Dow Jones Industrial Average finally ran out of steam Thursday as investors cashed in following an historic streak of 13 straight gains. The 30-stock index fell by 0.67% and was dragged lower by shares of Honeywell which dropped by 5.69%. A pop in the 10-year Treasury yield back above 4% didn’t help sentiment either. If it had gained a 14th day on Thursday, the index would have tied its record winning streak going way back to 1897. Meanwhile, the Nasdaq Composite slid 0.55% as investors took some profits in key tech shares like Microsoft and Apple. The Dow’s winning streak was driven by signs that the economy will dodge a recession, falling inflation data and resilient corporate earnings. Wall Street got more evidence on all those fronts on Thursday.
New GDP data showed U.S. economic growth accelerated this past quarter, defying the widespread slowdown expectations. The economy grew at a pace of 2.4% from the previous quarter, suggesting that the U.S. is steering clear of a recession. Faster economic growth this spring raises the prospect of a longer postpandemic expansion despite the Federal Reserve pushing interest rates to a two-decade high.
In other news, Meta Platforms shares popped 4.4% on better-than-expected results and strong guidance. The company’s numbers were boosted by a rebound in ad revenue. And the latest gross domestic product reading Thursday showed a rise of 2.4% in the second quarter, which was better than the 2% increase expected by economists polled by Dow Jones.
Chart of the Day:
The chart below highlights the different influences that pushed U.S. economic growth higher this past quarter. Business investment grew at an annual rate of 7.7% in the second quarter, up sharply from 0.6% in the first quarter. Some long-term forces are helping boost investment despite higher interest rates. A surge in federal spending on chip-manufacturing plants and electric-vehicle factories is offsetting some other cutbacks.
Net trade slightly subtracted from second-quarter growth, reflecting a sluggish global economy. Residential investment declined for the ninth consecutive quarter. Recent declines in residential investment reflect housing-market strains amid higher mortgage rates.
Still, a long-running shortage of previously owned homes is helping support new construction. The worst of the housing-market downturn could be in the rearview mirror, meaning residential investment could grow in the coming months.
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