[New York Stock Market] Nasdaq Rises 1.76% on Strong GDP and Tesla Surge

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed higher on the 26th (local time) as economic indicators such as GDP growth rate showed strength. Earlier, concerns over the earnings of representative tech stocks like Tesla eased further following remarks by CEO Elon Musk, which also helped boost investor sentiment.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,949.41, up 205.57 points (0.61%) from the previous session. The large-cap focused S&P 500 index rose 44.21 points (1.10%) to 4,060.43, and the tech-heavy Nasdaq index ended the day at 11,512.41, up 199.06 points (1.76%).

[Image source=Reuters Yonhap News]

All 10 sectors of the S&P 500, except for consumer staples, rose. Energy stocks rallied notably as international oil prices increased. Technology and communication sectors also jumped more than 1%.

Tesla, which released earnings exceeding expectations after the previous day's close, saw its stock price jump nearly 11% as CEO Musk dismissed concerns about weak demand and expressed confidence in earnings. Microsoft rose 3.07%, Apple 1.48%, and Amazon 2.10%. Meanwhile, IBM fell 4.48% despite quarterly sales surpassing estimates.

Southwest Airlines recorded larger-than-expected losses due to massive cancellations and delays during the Christmas holiday, causing its stock to drop more than 3%. American Airlines rose 2.15% after providing annual guidance exceeding expectations. Chevron climbed nearly 5% following the announcement of its share buyback program. Meme stock Bed Bath & Beyond, facing liquidity issues, plummeted over 22% after issuing a second bankruptcy warning.

Investors closely watched economic indicators and corporate earnings ahead of next week's Federal Reserve (Fed) Federal Open Market Committee (FOMC) meeting. The robust Q4 GDP growth rate released that day raised market expectations for a soft landing of the economy. Christopher Zuk, chairman of CAZ Investments, described this as "a slight relief rally."

According to the U.S. Department of Commerce, the preliminary real GDP growth rate for Q4 last year was 2.9% annualized, slightly exceeding the 2.8% forecast by experts compiled by The Wall Street Journal (WSJ). The U.S. economy had technically entered a recession with declines in Q1 (-1.6%) and Q2 (-0.6%) last year but resumed growth from Q3 (+3.2%). Surpassing Wall Street expectations through Q4, the annual growth rate for 2022 was positive at 2.1%. Although weaker than the previous year's 5.9%, the economy showed solid growth despite the Fed's aggressive tightening and recession concerns.

Other economic indicators released the same day also remained robust. Weekly initial jobless claims last week, seasonally adjusted, decreased by 6,000 to 186,000, below the expert forecast of 205,000. Durable goods orders in December rose 5.6% month-over-month, surpassing the market expectation of a 2.4% increase. WSJ described these as "data showing the U.S. economy remains resilient."

However, signs of slowing growth due to the Fed's aggressive rate hikes were also evident. Consumer spending, which accounts for more than two-thirds of the U.S. economy, increased 2.1% last quarter, slightly down from 2.3% in Q3. The slowdown in consumption indicators became more apparent in the second half of the year. Residential fixed investment, exports, and imports also declined last quarter. Residential fixed investment plunged 26.7%, reflecting the housing market downturn.

Additionally, ongoing corporate layoffs are expected to sustain concerns about the economy. Following IBM's announcement to cut up to 3,900 employees, or 1.5% of its workforce, chemical company Dow and German software firm SAP also announced plans to reduce 2,000 and 2,800 jobs respectively. Semiconductor equipment maker Lam Research said it would cut 7% of its staff.

Andrew Hunter, U.S. chief economist at Capital Economics, forecasted, "The impact of last year's rapid rate hikes is still expected to push the economy into a mild recession in the first half of this year." Jim Beard, chief investment officer at Plant Moran Financial Advisors, noted, "The economy is not as strong as the Q4 GDP suggests. While it showed solid growth at the end of last year supported by consumer spending, it is vulnerable as more pronounced slowdowns are expected over the next few quarters." The United Nations Department of Economic and Social Affairs (UN DESA) also downgraded growth forecasts for the U.S. and the global economy in 2023 due to the impacts of the Ukraine war, inflation, and financial tightening.

Investor attention is now focused on next week's FOMC meeting. Given recent signs of easing inflation, the market continues to expect the Fed to narrow the rate hike to 0.25 percentage points at the February FOMC. According to the Chicago Mercantile Exchange (CME) FedWatch, federal funds (FF) futures currently price in over a 98% chance of a 0.25 percentage point rate increase in February.

U.S. Treasury yields rose in the New York bond market that day. The 10-year Treasury yield recovered to the 3.5% level during the session. The 2-year yield, sensitive to monetary policy, also rose to around 2.19%. However, the inversion of the yield curve, where the long-term 10-year yield remains below the short-term 2-year and 3-month yields, persisted. This is generally considered a precursor to a recession.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, acknowledged the recent rally but warned of risks such as inflation and Fed rate hikes. He said, "The Fed may deliver another negative message to the market next week," cautioning that "we might be in the eye of the hurricane," signaling potential volatility.

The price of gold, a representative safe-haven asset, declined. On the New York Mercantile Exchange, February delivery gold closed at $1,930 per ounce, down $12.60 (0.7%) from the previous session. However, gold prices have continued to rise recently, approaching the record highs set during the pandemic. Some market participants even predict that gold prices could reach all-time highs this year.

International oil prices rose on improved U.S. economic data and expectations for Chinese crude demand. On the New York Mercantile Exchange, March delivery West Texas Intermediate (WTI) crude closed at $81.01 per barrel, up 86 cents (1.07%) from the previous session.