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Stocks Rise After Jobs Data and Q2 GDP Revisions

August 30, 2023
minute read

U.S. stock indices exhibited a slight upward trajectory during the morning hours of Wednesday. The latest data indicated a deceleration in economic growth, thereby reinforcing the notion that the Federal Reserve might abstain from further interest rate hikes.

Here's the current status of major indices:

  • The Dow Jones Industrial Average (DJIA) inched up by 26 points, equivalent to 0.1%, reaching 34,879.
  • The S&P 500 (SPX) registered a gain of 11.7 points, or 0.3%, advancing to 4,509.
  • The Nasdaq Composite (COMP) displayed an uptick of 52 points, equating to 0.4%, achieving 14,001.

In the preceding trading session, the market witnessed the following changes:

  • The Dow Jones Industrial Average rose by 293 points, a 0.85% increase, resulting in a closing value of 34,853.
  • The S&P 500 saw an upward movement of 64 points, signifying a 1.45% gain, concluding at 4,498.
  • The Nasdaq Composite surged by 239 points, denoting a 1.74% rise, culminating at 13,944.

The current market dynamics are being driven by the private sector payroll data released on Wednesday. Investors are observing this data in anticipation of potential indications of a moderating labor market, which could potentially bolster the Federal Reserve's decision to adopt a more accommodative monetary stance.

According to ADP, the payroll services firm, private sector payrolls expanded by 177,000 in August. This figure marked a decline from the revised count of 371,000 from the preceding month. The Wall Street Journal's poll of economists had projected an augmentation of 200,000 private sector jobs in August.

Quincy Krosby, Chief Global Strategist for LPL Financial, noted that although the ADP report might not exhibit an extraordinarily robust positive correlation with the government's impending payroll report, it does suggest a possible moderation in the previously overheated job market. This moderation aligns with the Federal Reserve's goals for achieving equilibrium in the labor market.

Meanwhile, the U.S. economy experienced a slightly subdued growth rate of 2.1% on an annual basis in the second quarter, as revealed by revised figures. This adjustment saw the Gross Domestic Product (GDP) revised down from an initial estimation of 2.4%.

According to José Torres, Senior Economist at Interactive Brokers, the present market sentiment responds positively to any data that might indicate a Federal Reserve shift towards a more accommodative stance, resulting in an upward push in equity values.

The S&P 500 index concluded the previous session at a three-week high, propelled by a significant decline in Treasury yields in response to indications of a softening labor market and waning consumer confidence.

Over the last three trading days, the benchmark index has gained 2.2%, reclaiming its position above the 50-day moving average. During this period, 10-year Treasury yields have dropped by nearly 15 basis points. This aligns with the pattern where equities tend to ascend when implied borrowing costs decline.

Despite these positive movements, Torres anticipates a downward trajectory for stocks moving forward. While August exhibited sluggish performance, the S&P 500 remains at approximately 4,500, merely 2% away from the year's peak. Torres emphasizes factors such as the Federal Reserve's diminishing balance sheet, the likelihood of an impending rate hike, and the relatively high price-to-earnings ratio in comparison to elevated interest rates. His projection for the S&P 500's conclusion is around 4,300.

Another data point of note is the U.S. trade deficit in goods, which widened by 2.6% to $91.2 billion in July. This information, released by the Commerce Department, aligns with the advanced estimate. Economists surveyed by Econoday had anticipated a slightly lower deficit of $90.8 billion.

In terms of corporate developments, the focus of the day centers around the upcoming earnings results from Salesforce (CRM), set to be released after the market closes. PC manufacturer HP (HPQ) delivered a cautious outlook in its late Tuesday announcement.

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Cathy Hills
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