Earnings and macro-data lift Wall Street

Better earnings and solid GDP growth help US stock recover from yesterday’s sharp losses.

Good news hasn’t necessarily been in short supply in recent weeks, but there have been quite a few incidences over the past seven days where investors have failed to embrace such news, instead focusing on potential risks or adopting a pessimistic interpretation of events. That hasn’t been the case today, though, where the reaction to upbeat earnings and data has been wholly positive.

We’ve seen a huge leap in Facebook, up close to 15% at the time of writing, its reward for growing revenues by a staggering 63% in its fourth quarter and generating an increased share of ad revenues through mobile devices. That has played a large part in the rise of the S&P 500 and NASDAQ 100 today, which rose 1.24% and 2.0% respectively by early afternoon in New York. The Dow has also risen today, if not quite as sharply, gaining 0.91% to 15,881. The Dow was hampered by a 0.8% fall in Exxon Mobil, after the company disappointed the market with a 16% fall in quarterly profit.

The news about the economy as a whole was reassuring for the most part as well. The first estimate for fourth-quarter GDP came in at 3.2% (seasonally-adjusted and annualised). While lower than the 4.1% final estimate for Q3, the areas of strength are encouraging (3.3% growth in personal consumption expenditure, the driving force of the US economy, and an 11.4% increase in exports) while some of the areas of decline are not things I’d particularly worry about: decreases in federal government spending is a known drag that we can expect to improve and lower private inventories could almost be considered an encouraging factor for the next quarter

 Interestingly, inflation still looks very cool, with the GDP price index rising just 1.3% after a 2.0% increase in Q3. Yesterday’s statement from the Fed said the committee acknowledges ‘inflation persistently below its 2% objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.’ I would point out that inflation has been persistently below 2% and that there is precious little evidence of it moving back towards target. We have more data in this area tomorrow with personal incomes and outlays for last month. The PCE price index, a closely-followed measure of inflation by the Fed, is expected to rise to 0.2% after slowing to 0.0% in December.  

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