Stock Markets After Red-Hot US GDP Data: Just Happy It's Over?
Stock Markets After Red-Hot US GDP Data: Just Happy It's Over?
By:Ilya Spivak
Stock markets seem happy enough to be done with US economic data without dwelling on the details.
- US GDP data revealed much faster Q3 growth than economists expected
- Traders recoiled at first as Fed rate cuts bet cooled, then found their footing
- Price action after US jobs and CPI inflation last week offered mixed results
US stocks pressed higher after gross domestic product (GDP) data showed the world’s largest economy grew much faster than economists expected in the third quarter. Output expanded at an annualized rate of 4.3%, amounting to the strongest result in two years. Median forecasts were penciling in 3.3% ahead of the release.
Traders jeered the news initially, with shares falling as the news appeared. Cooling Federal Reserve rate cut expectations probably explain that response. The probability of a 25-basis-point (bps) cut in January fell to just 13.3% from 24.3% a week earlier. The full-year 2026 outlook moderated to 53bps in easing, the least dovish in two weeks.
Stocks look chipper in pre-holiday trade despite falling Fed rate cut bets
The sour mood proved fleeting, however. Selling pressure let up after just one hour, with Wall Street storming higher thereafter. The bellwether S&P 500 and the tech-tilted Nasdaq 100 are on pace to close up nearly 0.5% on the day, extending their winning streak into a fourth day.
Last week, catch-up releases of US employment and inflation data delayed during October’s record-setting 43-day government shutdown whipsawed markets. The S&P 500 closed the week nearly flat after a drop of as much as 1.73% in the first half was trimmed back a loss of just 0.05% in the second half.
The jobs data revealed weaker than expected payrolls numbers for October and November, and the previously published figures for August and September were revised lower. Nevertheless, Fed rate cut expectations barely budged and risk appetite unraveled amid disappointment, leading stock slower.
Markets after key US economic data: just happy its over?
Sentiment snapped back after consumer price index (CPI) data revealed slower inflation than economists anticipated. Headline price growth moderated to 2.7% year-on-year, the weakest since July. The core measure excluding volatile food and energy prices rose just 2.6% year-on-year, the slowest in over four years.
The report’s internals seemed to support the Fed’s reading of the economic tea leaves. Stubborn service sector inflation helpfully cooled while the pickup in goods price growth linked to tariff hikes showed signs of plateauing. Nevertheless, the priced-in monetary policy outlook remained unchanged.
This time however, the markets resolved upward. By the end of the week, they’d erased almost all of the drop sustained after the jobs data, resetting markets to where they’d left off after the Fed’s December meeting ended with a let-down as traders bemoaned the disconnect between the reserved central bank and the dovish markets.
Perhaps the passing of event risk did more to uplift sentiment than the CPI data’s content. A similar response seems to be on display this week for the GDP report, with traders relieved to have the coast clear into the Christmas break. Tellingly, trading volumes have dropped to the lowest since the Thanksgiving holiday in late November.
Ilya Spivak, tastylive head of global macro, has over 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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