(Bloomberg) -- Stocks struggled to gain traction as bond traders slightly trimmed bets on Federal Reserve rate cuts after data showed the world’s largest economy is going strong.
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Equity trading was fairly muted, with major benchmarks little changed. Treasury two-year yields, which are more sensitive to imminent Fed moves, edged up. Advanced Micro Devices Inc. sank 9% as its revenue outlook underwhelmed. Alphabet Inc. rose 6% on a sales surprise. Ernst & Young LLP, the auditor to troubled server maker Super Micro Computer Inc., has resigned as the company’s registered public accounting firm. The shares sank 28%.
Inflation-adjusted gross domestic product increased at a 2.8% annualized after rising 3% in the previous quarter. Hiring at US companies accelerated by the most in more than a year, pointing to surprisingly solid demand for workers, according to the ADP Research Institute.
Comments on GDP:
Chris Low at LPL Financial:
What’s not to like? The primary takeaways are solid GDP growth fueled by strong consumption and strong capital equipment spending, all accompanied by inflation sliding back toward 2%. The Fed focuses on domestic demand, shown in the chart above, which has accelerated to almost twice the growth pace the Fed finds acceptable, but even that is nothing to lose sleep over with inflation lower in the third quarter.
Bret Kenwell at eToro:
Solid but not blistering growth fits nicely within the current economic backdrop. Too hot of a print and investors would likely question the Fed’s decision to cut rates by 50 basis points in September, while a weak GDP print could reignite worries about a deteriorating economy.
For a strong US economy, we need a strong consumer. Notably, investors have the PCE report and the monthly jobs report within the next 48 hours, so by Friday morning we should have a clear snapshot of the economy.
Investors should remember that we’re in a “good news is good news” environment and they should cheer for strong economic data — even if that means slower-than-expected rate cuts from the Fed. It’s far better to have a strong economy and earnings driving stocks higher rather than hopes of easing monetary policy from the Fed.
Matt Peron at Janus Henderson Investors:
The GDP report today was a modest positive surprise in that growth exceeded estimates and prices advanced less than anticipated. On its own, this was a market friendly report, confirming the notion that economic growth is not slowing rapidly and price pressures remained contained. This notion is also supported by a strong ADP payroll report earlier. We believe the strength is continuing into the fourth quarter and have been maintaining our positive views on markets and risk assets. That said, we think it’s prudent to maintain a late cycle posture as the cycle advances, staying up in quality to prepare for eventual volatility.
Jamie Cox at Harris Financial Group:
Growth up, inflation down is precisely what you want to see. The Fed doesn’t need to be afraid of a stable and growing economy to normalize rates this cycle so long a disinflation persists.
Matt Peron at Janus Henderson:
The US GDP report today was a modest positive surprise in that growth exceeded estimates and prices advanced less than anticipated. On its own, this was a market friendly report, confirming the notion that economic growth is not slowing rapidly, and price pressures remain contained. This notion is also supported by a strong ADP payroll report earlier. We believe the strength is continuing into the fourth quarter and we have been maintaining our positive views on markets and risk assets. That said, we think it’s prudent to maintain a late cycle posture as the cycle advances, staying up in quality to prepare for eventual volatility.
David Russell at TradeStation:
Inflation is becoming a thing of the past. The economy is getting back to its old self, with strong consumption and moderate prices. The main impact of today’s data could be to keep a lid on Treasury yields after their recent climb. The doves can be happy with the price data. Goldilocks is coming to town.
Scott Helfstein at Global X:
GDP growth slowed modestly but remained reasonably robust in the third quarter. The consumer came to the rescue with consumption growing at the fastest rate in over a year. With sentiment improving, this could set up a strong fourth quarter and potentially a manufacturing recovery.
Jeffrey J. Roach at LPL Financial:
According to this morning’s report, inflation eased considerably throughout Q3 which increases the odds the Fed will cut at both of the upcoming meetings this year.
Richard Flynn at Charles Schwab UK:
It’s important to remember that one report does not a trend make – this may be a change in the wind, but it also may just be a wobble. Overall, the economy is in a good place so we wouldn’t expect today’s numbers to factor too heavily in the Fed’s next policy decision. Recession will likely not be at the top of central bankers’ risk lists at this point – they’ll be keeping a much closer eye on inflation and jobs numbers as they seek to maintain this period of calm.
Corporate Highlights:
Eli Lilly & Co. lowered guidance Wednesday on lackluster sales of its blockbuster weight-loss drug, a shocking miss for a drugmaker that had been going from strength to strength on seemingly insatiable demand for these drugs.
Reddit Inc., the social-network operator that went public in March , reported sales and forecast that beat analyst expectations.
Snap Inc. reported third-quarter revenue that slightly topped analysts’ expectations, suggesting the overhaul of its advertising business is catching on with marketers. The shares rose in extended trading.
Chipotle Mexican Grill Inc. reported third-quarter sales that fell just short of Wall Street’s expectations, highlighting the high bar to which investors are holding the chain after it’s outpaced many peers this year.
Caterpillar Inc. posted a third-quarter profit that missed analysts’ expectations as the machinery producer grappled with weakening demand in construction around the world.
Boeing Co. and union leaders representing 33,000 striking workers held fruitful talks Tuesday, with the help of the Biden administration’s top labor official, as they try to end a seven-week labor dispute that’s crippling Boeing’s US manufacturing.
Reddit Inc.’s sales and forecast beat analyst expectations.
Qorvo Inc., a semiconductor maker forecast third-quarter revenue and profit that fell far short of estimates. The weak guidance highlights fears regarding smartphone demand amid reports of order cuts by Apple Inc.
Shake Shack Inc. quarterly sales beat Wall Street estimates as the burger chain said a new workforce model had raised its labor sales per hour to the highest level since 2019.
Visa Inc., the world’s biggest payments network, posted a fiscal fourth-quarter profit that beat Wall Street expectations as cross-border transactions increased.
UBS Group AG posted results that beat expectations across the board, as risks from regulation to market gyrations appear on the horizon.
BlackRock Inc. is in advanced talks to buy HPS Investment Partners, emerging as the only suitor in active talks with the firm as the world’s largest asset manager seeks to compete in the fast-growing private credit industry.
Airbus SE won an order for 60 A321neo jets from Saudi Arabia’s new carrier, as the kingdom pours billions of dollars into turning the country into an aviation and tourism hub.
AbbVie Inc. raised its full-year profit forecast as demand for its top-selling anti-inflammatory drugs, Rinvoq and Skyrizi, exceeded expectations.
Key events this week:
China Manufacturing and non-manufacturing PMI, Thursday
Bank of Japan rate decision, Thursday
Eurozone CPI, unemployment, Thursday
US personal income, spending and PCE inflation data, initial jobless claims, Thursday
Amazon, Apple earnings, Thursday
China Caixin manufacturing PMI, Friday
US employment, ISM manufacturing, Friday
Some of the main moves in markets:
Stocks
The S&P 500 fell 0.2% as of 9:48 a.m. New York time
The Nasdaq 100 fell 0.5%
The Dow Jones Industrial Average was little changed
The Stoxx Europe 600 fell 1.2%
The MSCI World Index fell 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0835
The British pound fell 0.3% to $1.2978
The Japanese yen rose 0.2% to 153.07 per dollar
Cryptocurrencies
Bitcoin fell 1% to $71,557.06
Ether rose 2.3% to $2,679.6
Bonds
The yield on 10-year Treasuries declined four basis points to 4.22%
Germany’s 10-year yield declined three basis points to 2.31%
Britain’s 10-year yield declined 10 basis points to 4.22%
Commodities
West Texas Intermediate crude rose 1.2% to $68.01 a barrel
Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.