Latest weekly commentary from Russ Koesterich, BlackRock's Chief Investment Strategist
Stocks Bounce Back, but Dip on GDP Report
Following a notable downturn two weeks ago, stock prices managed to stage a recovery last week, but did falter on Friday in the face of a first-quarter gross domestic product report that was a bit worse than expected. For the week, the Dow Jones Industrial Average rose 1.1% to 14,712, the S&P 500 Index advanced 1.7% to 1,582 and the Nasdaq Composite climbed 2.3% to 3,279. In fixed income markets, Treasury yields continued to fall, as prices correspondingly rose. The yield on the 10-year Treasury declined from 1.70% to 1.66%
The first-quarter GDP report showed that the economy grew by 2.5%, less than expected but a significant improvement over the fourth quarter of last year. The data showed that the economy was dragged down by lower government spending (which should not have been a surprise given the sequester-related spending cuts), but, encouragingly, we also saw a healthy rise in household spending.
One problem with the economy is that higher spending has not been matched by higher income levels. We have been saying for some time that for the economy to continue to grow, consumers will need to make more if they are going to continue to spend more. On early Monday morning (April 29), the Commerce Department released March's personal income data, which showed only a 0.2% increase, less than the anticipated 0.4% advance. For the economy to continue to grow at the pace seen in the first quarter, we'll need to see improvements in this statistic; otherwise consumption is likely to slow, and with it, the overall economy.
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