Stocks Cheer Economic Rebound, Yield Ease on Slower Rise In PCE

Barry Adams
27 Oct, 2022
New York City

Stocks rebounded following the release of GDP, durable goods and weekly jobless claims reports.  

U.S. GDP in the third quarter rose at an annual rate of 2.6% after falling for two quarters in a row, according to the report released by the Bureau of Economic Analysis Thursday.   

The GDP rebounded from the 0.6% decline in the second quarter after improvement in net international trade helped the economy to rebound, supported by resilient consumer spending and a rise in business investment. 

Bond yields fell sharply after the BEA report showed a marked decrease in growth in the price index, a measure of inflation. 

The PCE price index increased 4.2% from 7.3% and excluding food and energy prices, the index increased 4.5% from 4.7% in the second quarter. 

In other economic news, weekly jobless claims increased to 217,000 in the week ending on October 22, an increase of 3,000 from the unrevised claims of 214,000 from the previous week.  

The seasonally adjusted durable goods orders increased 0.4% in September from the previous month to $274.4 billion, reported U.S. Census Bureau Thursday. 

The September increase follows the revised 0.2% rise in August. 

On a yearly basis, orders rose 10.9%.

Shipments rose 0.3% on a monthly basis and jumped 11.3% from a year ago.  

The S&P 500 index eased 0.2% to 3,822.35 and the Nasdaq Composite index dropped 1.1% to 10,847.92 . 

Crude oil increased $1.10 to $89.92 and natural gas fell 5 cents to $5.54 a thermal unit. 

The yield on 2-year Treasury notes edged lower to 4.38%, 10-year Treasury notes declined to 3.98% and 30-year bonds to 4.11%. 

 

U.S. Stock Movers 

Ford Motor Company dropped 0.1% to $12.83 after the automaker reported a third quarter loss of $827 million. 

Ford said larger-than-expected loss was driven by $1 billion in higher supply chain issues related costs and parts shortages affecting at least 40,000 vehicles sales. 

Meta Platforms plunged 22.5% to $100.65 after the social media platform operator reported second quarterly fall in revenue in a row. 

Third quarter revenue declined 4% to $27.7 billion and net income plunged 52% to $4.4 billion from $5.2 billion a year ago. 

Diluted earnings per share fell to $1.64 from $3.22 a year ago. 

The company also forecasted revenue in the fourth quarter to fall between $30 billion and $32.5 billion, lower than $33.6 billion in the fourth quarter 2021. 

McDonald's increased 3.4% to $265.45 after the fast food chain operator reported better-than-expected quarterly results and added that the U.S. store traffic rose despite the increase in menu prices. 

The fast food chain operator said global comparable sales increased 9.5% and the U.S. comparable sales increased 6.1%, ninth quarterly increase in a row. 

Third quarter revenues declined 5% to $5.8 billion from $6.2 billion a year ago. 

Net income dropped 8% to $1.98 billion from $2.1 billion and diluted earnings per share fell 6% to $2.68 from $2.86 a year ago. 

McDonald's increased quarterly cash dividend by 10% to $1.52 a share. 

 

ECB Hikes Rates and Forecasts More Increases to Follow  

The European Central Bank lifted its key lending rate by 75 basis points, the second large-size rate hike in a row and third increase this year. 

The central bank also said it plans to revise terms of targeted longer term refinancing operations or TLTROs, the plan designed to encourage banks to lend to customers. 

The interest rate charged for such facilities will be changed on November 23 and the banks will be given an opportunity for early repayment. 

The facility was created to incentivize banks to increase lending in the real economy at the height of the pandemic but since the economic conditions have changed and inflation has soared from less than 2% to above 10%. 

After the latest rate hike, the main lending rate was revised higher to 1.5%, the level not seen since 2009. 

Despite the latest rate increase, rates are still in negative territory and the central bank is not done with rate increases.