Dow, S&P 500 rise on strong economic data

   The Dow Jones Industrial Average and S&P 500 gained on Thursday as investors cheered a slate of strong economic data.

Gross domestic product, the broadest measure of economic output, increased at an annualized rate of 2% in the first quarter, surging past economists' predictions of a 1.4% rate, according to Refinitiv. This was the final revision of the measure and was substantially higher than the past revision of 1.3%.

Initial jobless claims fell last week to 239,000, underscoring the labor market's strength despite the Federal Reserve's aggressive interest rate hiking campaign. Economists expected 265,000 initial claims to be filed, according to Refinitiv.

Still, the housing market showed signs of slowing: Mortgage rates averaged 6.71% in the week ending June 29, up from 6.67% the week before, according to Freddie Mac data.

Bank stocks rose on the Federal Reserve's stress test results. JPMorgan Chase shares gained 3.5%, Bank of America rose 2.1% and Wells Fargo added 4.5%.

Regional bank stocks also gained. PacWest Bank shares gained 3.3% and New York Community Bank added 0.09%.

Shares of Apple rose 0.2% to an all-time high close of $189.59, notching its third-consecutive day of reaching a record close.

The Dow rose 270 points, or 0.8%.

The S&P 500 gained 0.5%.

Dow gains over 270 points as bank stocks continue to rise

The Dow Jones Industrial Average index rose 276 points, or 0.8% as bank stocks rose on the Federal Reserve's stress test results.

The S&P 500 gained 0.4% and the Nasdaq Composite inched up 0.03

JPMorgan shares gained 3.3%, Wells Fargo added 3.8%, Bank of America rose 2.5% and Citigroup increased 0.6%.

Regional bank stocks also rose. The SPDR S&P Regional Banking exchange-traded fund gained 1.6%.

Cheery economic data also helped lift stocks. Initial jobless claims fell less-than-expected last week, while the final revision for first-quarter gross domestic product came in substantially higher than the past revision.

Mortgage rates ticked up this week.

The 30-year fixed-rate mortgage averaged 6.71% in the week ending June 29, down from 6.67% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.7%.

Mortgage rates have remained over 5% for all but one week during the past year and even went as high as 7.08%, last reached in November, but have been coming down since the end of May.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.

Stocks were mixed Thursday morning as investors parsed new data on the state of the economy.

Gross domestic product, the broadest measure of economic output, increased 2% year-over-year in the first quarter. That's well beyond economists' predictions of a 1.4% rate, according to Refinitiv. This was the third revision of the measure and it was substantially higher than the past revision of 1.3%.

Initial jobless claims fell last week to 239,000, in the latest show of the labor market's resiliency. Economists expected 265,000 initial claims to be filed, according to Refinitiv.

Meanwhile, bank stocks rose after the Federal Reserve said in its annual bank stress test results released on Wednesday that the largest US banks have systems in place to continue lending to households and businesses even during a severe recession.

All 23 banks required to take the Fed's exam performed better this year compared to last year despite being tested against a more painful worst-case scenario. JPMorgan Chase shares rose 2.2%, Wells Fargo gained 3.2% and Citigroup added 0.4%.

Overstock.com shares climbed 20.6% after a judge approved the firm's $21.5 million purchase of Bed Bath & Beyond, and Overstock.com said it will assume the acquired company's name.

The Dow rose 166.38 points, or 0.49%.

The S&P 500 gained 0.22%.

The Nasdaq Composite fell 0.03%.

US pending home sales dropped more than expected in May, according to data released Thursday by the National Association of Realtors. 

The index shrank 2.7% from April, to 76.5 in May. Economists were expecting a drop of 0.5%, according to consensus estimates on Refinitiv. 

The pending home sales index is a forward-looking indicator based on signed contracts to buy a home rather than final sales, which are accounted for in the existing home sales index.

With May's tumble and a downward revision to April's previously steady reading, the index has now declined for three consecutive months.

Year over year, pending transactions were down 22.2%. All four US regions saw year-over-year declines in transactions. 

"Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing," said NAR Chief Economist Lawrence Yun, "The lack of housing inventory continues to prevent housing demand from being fully realized."

An index reading of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined by the NAR. By coincidence, the volume of existing home sales in 2001 fell between 5 million to 5.5 million, a range considered normal for the current US population.

The US housing market has been on a wild ride in the past two years: Home sales and prices soared in the recovery from the pandemic; but then as mortgage rates jumped, closings plummeted and prices started coming back to Earth. 

Mortgage rates have ticked down in recent weeks, and the 30-year fixed-rate mortgage averaged 6.67% in the week ending June 22.

The US economy expanded at a much faster pace in the first three months of the year than previously estimated, the Commerce Department reported on Thursday.

Gross domestic product, the broadest measure of economic output, rose by an annualized rate of 2% in the first quarter, up from the second estimate of 1.3%. That was also well above economists’ expectations of 1.4% rate, according to Refinitiv.

The department’s final estimate of first-quarter GDP reflected an upward revision to exports, consumer spending, state and local government spending, and investment from housing businesses, such as landlords. The new data showed that Americans spent more on services and less on goods, including a jump in spending on health care services. Consumer spending accounts for about two-thirds of economic output and the latest estimate incorporated data from the Commerce Department’s Quarterly Services Survey.

The revised trade flows contributed positively to GDP, with exports rising more than previously estimated while imports were revised down. Residential fixed investment — spending from housing businesses or landlords — had less of a drag on GDP. Nonresidential businesses cut back more than previously reported, specifically more on equipment purchases.

The final first-quarter GDP estimate shows that the US economy was in much better shape than previously thought, thanks to resilient US consumers, though economists say that momentum has slowed in recent months.

“While consumers are still spending, they are exercising more discretion as lingering inflation and the Federal Reserve’s tightening cycle take their toll,” wrote Gregory Daco, chief economist at Ernst & Young, in an analyst note. “We still believe a recession is more likely than not, but we have lowered our recession odds to 55%, and if it were to materialize it would have unique characteristics.”

The Fed kept its key federal funds rate steady at a range of 5-5.25% earlier this month, though most officials expect to hike rates two more times this year to successfully tamp down any lingering inflationary pressures.

And that’s on the backdrop of banks toughening their lending standards, inflation still hovering above the Fed’s 2% target, student loan payments restarting later this year, and the labor market steadily cooling. Consumers are facing a challenging economic landscape in the future, but central bankers, including Fed Chair Jerome Powell, and many economists have lauded the resilience of the US economy.

And consumers might spend a bit more as the still try to recoup lost time or secure purchases they previously weren’t able to.

“Consumers who still have discretionary dollars to put to use are still spending them either on on new autos, which weren’t available in the last two years because of the chip shortage, or spending them on services, the face-to-face economy where a lot of plans got derailed by the pandemic,” Bill Adams, chief economist at Comerica Bank, told CNN.

America's banking system is far more resilient after safeguards were put in place following the Great Recession; however, the failure of three US banks and the buckling of Credit Suisse prove a need to "not grow complacent," Federal Reserve Chair Jerome Powell said on Thursday.

The Fed should bolster its oversight of financial institutions in the wake of the bank failures, said Powell during a speech at a financial stability conference in Madrid, Spain.

"These events suggest a need to strengthen our supervision and regulation of institutions of the size of [Silicon Valley Bank]," Powell said, according to prepared remarks. "I look forward to evaluating proposals for such changes and implementing them where appropriate."

Powell noted that banks and regulations are stronger following the financial crisis that shocked the world 15 years ago. That resilience, which he credited in part to regulatory reforms, helped the financial system withstand the "unprecedented shock" in 2020 that was the global pandemic.

"It is very difficult to resist the natural human tendency to fight the last war," Powell said. "In 2008 we saw banks come under stress from outsized credit losses and insufficient liquidity. Such losses appeared possible in the early days of the 2020 crisis, although they ultimately did not materialize."

However, the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank exposed weaknesses, Powell said. In particular: SVB's vulnerability came from interest rate risk exposure and a heavy dependence on uninsured deposits; and bank runs now can be instantaneous.

"The bank runs and failures in 2023, however, were painful reminders that we cannot predict all of the stresses that will inevitably come with time and chance," he said. "We therefore must not grow complacent about the financial system's resilience."

Initial jobless claims fell last week

There were 239,000 first-time claims for unemployment insurance during the week ending June 24, down 26,000 from the previous weeks' upwardly revised total, according to Department of Labor data released Thursday.

Economists were expecting 265,000 initial claims to be filed, according to Refinitiv.

Continuing claims, which are filed by people who have received unemployment benefits for more than one week, were 1.742 million for the week ended June 17, down from the prior week's revised total of 1.761 million. Economists were expecting 1.765 million continuing claims, according to Refinitiv.

Weekly jobless claims, which are highly volatile and frequently revised, remain below historical averages: In the decade before the pandemic, weekly claims for unemployment benefits averaged 311,000, Labor Department data shows.

The four-week moving average for initial claims has trended up in recent weeks, landing at 257,500 claims, according to Thursday's data. That's the highest level for the average since November 2021, according to the Labor Department.

US stock futures were higher Thursday morning after more public comments from Federal Reserve Chair Jerome Powell and a slew of economic data.

Dow futures were up 100 points, or 0.3%. S&P 500 futures rose 0.3% and Nasdaq Composite futures were 0.4% higher.

Stocks ended the day mixed Wednesday after Powell doubled down on the central bank's hawkish stance against inflation.

At a panel featuring other global central bank leaders, Powell acknowledged Wednesday that the Fed has raised interest rates at a rapid pace over the past year.

However, he said the hot labor market and stubbornly high inflation suggests there are more rate hikes ahead — even back to back.

“I wouldn’t take moving at consecutive meetings off the table at all,” Powell said.

Traders now see a roughly 82% chance of a hike at the Fed's July meeting, according to the CME FedWatch Tool.

The largest US banks have sufficient safeguards in place to weather a severe recession while continuing lending to households and businesses, the Federal Reserve said Wednesday in its annual bank resilience test.

The Fed’s stress tests carried extra weight this year after the collapse of three US banks sent shockwaves through the banking system.

All 23 banks required to take the Fed’s exam fared better this year compared to last year, despite being subjected to a worst-case scenario that was even more painful than last year’s.

Like last year, banks tested remained above their minimum capital requirements in the test’s worst-case scenario but would stand to lose a collective $541 billion. Capital ratios would decline by 2.3% to 10.1%, more than double the requirement.

Last year’s tests, which included smaller banks that are tested every other year, found that those tested would lose $612 billion and capital ratios would decline by 2.7% to 9.7%.

Some Fed officials have made it clear in recent speeches that inflationary pressures persist, pointing to core inflation, which excludes volatile food and gas prices, not decelerating as fast as overall inflation.

At a central banker conference in Sintra on Wednesday, Federal Reserve Chair Jerome Powell echoed that sentiment, pointing to services inflation — which includes labor-intensive businesses such as restaurants and health care facilities — remaining stubbornly high.

"Labor costs are really the biggest factor in most parts of that sector," Powell said. "We need to see a better alignment of supply and demand in the labor market and see some more softening in labor market conditions so that inflationary pressures in that sector can also begin to subside."

An often-cited paper by former Fed chair Ben Bernanke argued that the labor market has had a minor, but persistent, impact on inflation that can only be remedied by the economy slowing further. That makes a case for more rate hikes.

The labor market has held remarkably steady in recent months, routinely bucking expectations. Employers added a robust 339,000 jobs in May, while the unemployment rate ticked up to a still-low 3.7% that month.

Federal Reserve Chair Jerome Powell doubled down Wednesday on the hawkish view that the central bank isn't done tamping down inflation, and could even implement consecutive rate hikes at its upcoming monetary policy meetings.

"If you look at the data over the last quarter, what you see is stronger than expected growth, a tighter than expected labor market and higher than expected inflation," Powell said during a central banker panel hosted by the European Central Bank in Sintra, Portugal.

"That tells us that although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough."

Powell said officials haven't decided how and when they will raise rates, including if they will hikes rates at every other meeting or do back-to-back rate hikes.

"I wouldn't take moving at consecutive meetings off the table at all," he said.

President Joe Biden on Wednesday formally unveiled “Bidenomics,” the ground-up economic philosophy he claims serves as the driving force behind the US economy’s success.

When an economy grows “from the middle out and the bottom up instead of just the top down… everybody does well,” Biden said in a speech from Chicago.

But the economy’s track record under Biden is anything but flawless. And while Biden’s growing list of Republican challengers differ on many issues, when it comes to the economy, they’re in agreement that Biden failed.

In reality, it’s a mixed bag.

Americans have grappled with inflation for more than a year, including a painstaking issue with housing affordability as the Federal Reserve raised interest rates 10 times in a row to bring that inflation down.

In addition, a tight labor market has left many small businesses with ongoing hiring difficulties. Meanwhile, in anticipation of a recession, large companies have tightened their belts and resized their workforce by laying off thousands of workers.

But it hasn’t all been bad. American workers have rejoiced in a robust labor market that has allowed them to quit their jobs for a better one — one that can pay them more or allow them the flexibility of working from home.

Many Americans were given a financial boost during the Covid pandemic in the form of stimulus checks and a break from student loan payments, although the latter are restarting later this year.

source:CNN