US stocks and bond yields drop after GDP rebounds


US stocks and Treasury bond yields dipped on Thursday as investors juggled weak earnings reports with data that showed the US economy expanded in the third quarter.

The S&P 500 fell 0.6 per cent, erasing earlier gains, while the technology-heavy Nasdaq Composite fell 1.6 per cent.

Those moves came after data showed the world’s largest economy grew in the third quarter, having contracted for the first six months of the year. Gross domestic product increased 2.6 per cent on an annualised basis between July and September, compared with economists’ expectations of a rise of 2.4 per cent. But the headline figure masked weaker domestic consumer demand, which suggests a slowing economy.

Investors were also watching the latest flurry of quarterly corporate earnings for signs of strain from rapid price growth and rising borrowing costs, against an increasingly challenging economic backdrop.

Shares in Facebook owner Meta tumbled 24.6 per cent on Thursday after it reported another quarter of declining revenues, joining other Big Tech groups in warning this week that a slowdown was hitting its advertising businesses.

After the bell, Amazon reported weaker-than-forecast sales, dropping 18 per cent in after-hours trading.

The two-year Treasury yield, which moves with interest rate expectations, reached its lowest level in two weeks, down 0.1 percentage points at 4.3 per cent. The 10- and 30-year Treasury yields fell to their lowest levels in more than a week.

The Federal Reserve has raised interest rates aggressively this year in an attempt to curb inflation, with extra-large increases of 0.75 percentage points at each of its past three meetings — taking its target range to between 3 per cent and 3.25 per cent. A fourth consecutive 0.75 percentage point increase is expected at the US central bank’s meeting next week.

Concerns have intensified that the Fed and its international peers will turn the screws on monetary policy into a protracted slowdown.

Jim Paulsen, chief investment strategist at The Leuthold Group, said fears of a recession in the US were slowly overtaking concerns that the Fed had lost control of inflation.

“The force behind [this month’s] moves higher for stocks is the idea the tightening cycle is about over,” said Paulsen. “The Fed may not have blinked yet but maybe the bond market has and that seems to be enough for equities.”

In Europe, the benchmark Stoxx 600 index finished flat. The European Central Bank raised interest rates by 0.75 percentage points in its latest effort to tackle inflation, pushing its deposit rate to 1.5 per cent — the highest level since 2009.

Inflation in the euro area hit 9.9 per cent in the year to September, while S&P Global’s flash eurozone composite purchasing managers’ index, a crucial gauge of business conditions for the manufacturing and services sector, indicated business activity in the eurozone this month suffered its biggest contraction for almost two years.

Luca Paolini, chief strategist at Pictet Asset Management, said the ECB could be tempted to slow the pace of increases in December if the Fed followed a similar path, even though short-term inflationary pressures are greater in Europe than they are in the US.

“Falling natural gas prices give the ECB some justification for slowing the pace of tightening [later this year] and the bank would rather go big now to prove it’s serious about inflation,” said Paolini. “By December, the main worry will not be inflation, but the decline in economic activity.”

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