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Dow Staggers After Vicious GDP Imbalance Rattles Bond Markets

The Dow and broader U.S. stock market struggled for direction on Friday after stronger-than-expected GDP data exposed significant imbalances in the world’s largest economy. Those imbalances rattled bond markets, sending yields lower.

Dow Struggles Despite Strong GDP Growth

All of Wall Street’s major indexes struggled for direction on Friday, which reflected a tepid pre-market for Dow futures. After dropping by as much as 70 points, the Dow Jones Industrial Average edged up 14 points, or 0.1%, to 24,476.75.

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After a tepid start, the Dow Jones Industrial Average breaks higher in afternoon trade. | Chart via Yahoo Finance.

After initial weakness, the broad S&P 500 Index of large-cap stocks traded in positive territory, gaining 0.1% to 2,929.83. Most of the 11 primary sectors reported gains, led by consumer staples. Energy was the biggest drag on growth, falling 1.9%.

The technology-focused Nasdaq Composite Index pared losses to settle down 0.1% at 8,114.05.

U.S. GDP Growth Blows Past Estimates, with a Few Important Caveats

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U.S. economy gathers pace in the first quarter, but concerns about weak consumer spending threaten the stock market’s outlook. | Source: REUTERS/Jonathan Ernst

The U.S. economy gathered pace in the first quarter, as rising exports and higher inventory investment offset a sharp slowdown in consumer spending.

Gross domestic product (GDP) – the broadest measure of economic growth – expanded at an annual rate of 3.2% in the first quarter, the Department of Labor reported Friday. That was the strongest start to a year since 2015 and well above the median estimate calling for 2% growth.

Investors were initially hesitant about the report because it showed that consumer spending grew just 1.2% between January and March, down from 2.5% in the fourth quarter. Consumer spending account for more than two-thirds of economic output.

A big bulk of the quarterly gains, namely 1.03 percentage points, was attributed to net exports. A rise in net exports means imports declined. Depending on who you ask, this can be a good thing or a bad thing.

On the one hand, it suggests that U.S. trade policy is working favorably for exporters; on the other hand, declining imports often points to a slowdown in domestic consumption and a deceleration in the overall economy.

That apprehension was reflected in the bond market on Friday as Treasury yields fell. The benchmark 10-year yield fell to 2.502% from 2.536% on Thursday. Yields fall when bond prices fall.

The U.S. dollar also fell against a basket of competitor currencies as traders sought refuge in gold. The DXY dollar basket fell 0.3% to 97.95.

Click here for a real-time Dow price chart.


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