The Q1 US gross domestic product report represented the “worst” mix of developments for stock investors as it highlights stalling domestic economic expansion and sticky inflation, according to Independent Advisor Alliance’s top strategist.
The Commerce Department’s advance estimate of Q1 GDP showed the economy rose at an annual rate of 1.6%, the lowest pace in two years. Heating inflation was underscored as the core PCE price index, the Federal Reserve’s preferred inflation gauge, rose to 3.7% from 2% in Q4 2023.
“This report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said in a note. “The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing, so if neither are headed in the right direction then that’s going to be bad news for markets.”
Stocks (SP500) (COMP:IND) were rocked lower Thursday, with the Dow Jones Industrial Average (DJI) sinking more than 600 points during the session. Meanwhile, the 10-year Treasury yield (US10Y) jumped alongside other US bond yields. The 2-year yield (US2Y) shot back up above 5%.
“We’re looking ahead to [Friday’s] PCE numbers because slowing inflation is the number one issue for the Fed and the rate cut (or even rate increase) debate has been heating up and that’s what’s injected so much uncertainty into bond and stock markets lately,” Zaccarelli said.
Investors can keep watch on markets through a number of stock and bond ETFs including these:
SPDR S&P 500 ETF Trust (SPY) iShares Core S&P 500 ETF (IVV) Vanguard S&P 500 ETF (VOO) Vanguard Total Bond Market ETF (BND) iShares Core U.S. Aggregate Bond ETF (AGG) Vanguard Total International Bond ETF (BNDX)