GDP: Putting the Energy Back in Stocks

A better-than-expected expansion of fourth-quarter real GDP at an annual rate of 3.2 percent energized the stock market on Thursday.

The stock market shrugged off a disappointing increase in weekly initial unemployment claims as the more-important advance report on fourth-quarter GDP was better than expected. Although economists were expecting to see that real GDP expanded at an annual rate of 3.0 percent during the fourth quarter, the Bureau of Economic Analysis reported expansion at an annual rate of 3.2 percent.

The all-important personal-consumption expenditures increased 3.3 percent in the fourth quarter, compared with 2.0 percent during the third quarter. For calendar year 2013, real GDP increased by 1.9 percent, compared with 2.8 percent expansion in 2012. The decrease resulted from “negative contribution from federal government spending” (i.e. the inane austerity program, or budget sequester, which will not be a factor in 2014).

The Department of Labor reported that for the week ending January 25, the advance figure for initial unemployment claims rose by 19,000 to 348,000. Economists had been expecting to see 327,000 initial claims. The four-week moving average rose by 750 claims to 333,000.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 109 points to finish Thursday’s trading session at 15,848 for a 0.70 percent advance. The S&P 500 (NYSEARCA:SPY) jumped 1.13 percent to close at 1,794 — erasing the losses experienced this week, after closing at 1,790 last Friday. The Nasdaq 100 (NASDAQ:QQQ) soared 1.86 percent, climbing back above its 50-day moving average to finish at 3,532. The Russell 2000 (NYSEARCA:IWM) soared 1.51 percent to end the day at 1,139. 

In other major markets, oil (NYSEARCA:USO) advanced 0.63 percent to close at $34.95. On London’s ICE Futures Europe Exchange, March futures for Brent crude oil declined 09 cents (0.08 percent) to $107.15/bbl. (NYSEARCA:BNO). April gold futures declined $18.90 (1.50 percent) to $1,243.30 per ounce (NYSEARCA:GLD).

The transportation sector got a fresh supply of dilithium crystals on Thursday, as the Dow Jones Transportation Average jumped 1.55 percent to 7,302, climbing back above its 50-day moving average of 7,272 (NYSEARCA:IYT).

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks sank as the yen strengthened to 102.49 per dollar during the last hour of Thursday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average fell 2.45 percent to 15,007 (NYSEARCA:EWJ).

In China, stocks declined after Thursday’s release of the final reading on the HSBC China Manufacturing PMI for January indicated a drop to a six-month low of 49.5, which was worse than the flash reading of 49.6. A reading above 50 indicates expansion and a reading below 50 indicates contraction. The Shanghai Composite Index fell 0.82 percent to 2,033 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.48 percent to 22,035 (NYSEARCA:EWH).

In Europe, stocks advanced following upbeat earnings reports from a number of companies with names which would be unfamiliar to most Americans — except for pharmaceutical giant Roche, which saw its share price skyrocket 4.31 percent. The Euro STOXX 50 Index climbed 0.53 percent to 3,027 – remaining below its 50-day moving average of 3,056. Its Relative Strength Index is 41.66 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 came closer to its 50-day moving average of 1,812 after jumping 1.13 percent to finish Thursday’s trading session at 1,794. Its Relative Strength Index climbed from 34.76 to 42.95. Although the MACD appears to be on a downward trajectory below the signal line, the MACD histogram indicates a slight rise, which would suggest that the S&P could continue its advance during the immediate future.

On Thursday, all sectors were solidly in positive territory, while the consumer staples sector trailed the group, with a less-impressive, 0.15 percent advance.

Consumer Discretionary (NYSEARCA:XLY): +1.68%
Technology: (NYSEARCA:XLK): +1.22%
Industrials (NYSEARCA:XLI): +0.98%
Materials: (NYSEARCA:XLB): +0.48%
Energy (NYSEARCA:XLE): +0.32%
Financials: (NYSEARCA:XLF): +1.43%
Utilities (NYSEARCA:XLU): +1.54%
Health Care: (NYSEARCA:XLV): +1.82%
Consumer Staples (NYSEARCA:XLP): +0.15%

Bottom line: The better-than-expected advance estimate on fourth-quarter GDP erased the decline experienced by the S&P 500 during the first three days of this week.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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