Stocks closed higher on Wednesday, marking a fourth-straight day of gains, following revised GDP data that showed slower economic growth than previously estimated. The S&P 500 rose about 0.4%, while the Dow Jones Industrial Average increased by 0.1%, and the Nasdaq Composite saw a 0.5% rise.
Revised GDP Data Shows Slower Growth in Q2
The US economy grew at an annualized rate of 2.1% in the second quarter of 2023, according to the second estimate released by the Bureau of Economic Analysis on Wednesday. This was lower than the advance estimate of 2.4% and the consensus forecast of 2.3%. The downward revision mainly reflected weaker consumer spending, business investment, and net exports.
The slower growth in the second quarter followed a robust expansion of 6.3% in the first quarter, which was the fastest pace since 2018. The economy has been recovering from the pandemic-induced recession, but still faces headwinds from supply chain disruptions, labor shortages, and rising inflation.
ADP Report Shows Weaker-Than-Expected Job Growth in August
Private-sector employment increased by 374,000 jobs in August, according to the ADP National Employment Report released on Wednesday. This was below the consensus estimate of 613,000 jobs and the revised figure of 326,000 jobs in July.
The service-providing sector added 329,000 jobs, while the goods-producing sector added 45,000 jobs. The leisure and hospitality sector, which was hit hard by the pandemic, added 201,000 jobs, accounting for more than half of the total job growth.
The ADP report is seen as a precursor to the official monthly jobs report from the Bureau of Labor Statistics, which will be released on Friday. Economists expect the report to show that the US economy added 750,000 nonfarm payrolls in August and that the unemployment rate fell to 5.2% from 5.4% in July.
Fed Chair Powell Signals Tapering Could Start This Year
The Federal Reserve has been buying $120 billion worth of Treasury and mortgage-backed securities per month since March 2020 to support the economy and keep interest rates low. However, as the economy recovers and inflation rises, the Fed has been debating when to start reducing or tapering these purchases.
Last week, Fed Chair Jerome Powell said that the central bank could start tapering its asset purchases this year if the economy continues to make progress toward its goals of maximum employment and stable inflation. However, he also stressed that tapering does not mean that the Fed is close to raising its benchmark interest rate, which has been near zero since March 2020.
Powell’s remarks were seen as dovish by investors, who interpreted them as a sign that the Fed will not rush to tighten its monetary policy and will remain supportive of the economic recovery. This boosted market sentiment and lifted stock prices.
Market Outlook
Stocks have been trading near record highs in recent weeks, as investors weigh the prospects of strong corporate earnings, fiscal stimulus, and vaccine rollouts against the risks of slowing economic growth, rising inflation, and the spread of the Delta variant of COVID-19.
Some analysts expect stocks to continue their upward trend in the coming months, as earnings growth remains solid and consumer spending remains resilient. Others caution that stocks are overvalued and vulnerable to a correction, as valuations are stretched and uncertainties remain high.