EVEN if data this week shows a mediocre rebound in United States 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.
US gross domestic product for the second quarter, due to be released on Wednesday, is forecast to have grown 3.2 per cent. Growth had shrunk 2.9 per cent in the first quarter due to a harsh winter and spending cuts tied to the federal Affordable Care Act.
Still, some lacklustre recent data on housing and capital spending, plus a mixed bag of second-quarter earnings, have raised the risk that even a moderate gross domestic product (GDP) bounce may fall short of expectations.
Indeed, Friday’s disappointing report on durable goods orders last month spurred JPMorgan and Goldman Sachs to shave their second-quarter outlook by 0.1 percentage point to 2.6 and three per cent 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, here.
The Standard & Poor’s 500 index fell 0.4 per cent on Friday after closing at a record high of 1,987.98 on Thursday, while benchmark 10-year Treasuries yield was little changed on the week at 2.48 per cent.
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 the five months, a level of strength last seen in the late 1990s.
While more Americans have returned to work, Fed 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 two per cent 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, US short-term interest rate futures implied that traders priced in a 53 per cent chance of a Fed rate hike in June 2015 and a 75 per cent 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 US$35 billion (RM111 billion) a month — at 2pm on Wednesday. Reuters