Even if data next week shows a mediocre rebound in US economic growth, that might be enough to keep the stock market aloft at record highs and the federal reserve steadfast in its winding down of stimulus through bond purchases.
US gross domestic product for the second quarter, due to be released Wednesday, is forecast to have grown 3.2 percent. Growth had shrunk 2.9 percent in the first quarter due to a harsh winter and spending cuts tied to the federal Affordable Care Act.
Still, some lackluster recent data on housing and capital spending, plus a mixed bag of second-quarter earnings, have raised the risk that even a moderate GDP bounce may fall short of expectations.
Indeed, Friday’s disappointing report on durable goods orders in June spurred JPMorgan and Goldman Sachs to shave their second-quarter outlook by 0.1 percentage point to 2.6 percent and 3.0 percent growth, respectively.
While recent anxiety over conflict in Ukraine and Middle East has somewhat kept a lid on stock prices, it has not spooked investors enough to prompt them to dump equities for bondsand cash.
“The market has been resilient to these setbacks. They have taken bad news in stride,” said Steve Weiting, global chief investment strategist with Citi Private Bank in New York.
The Standard & Poor’s 500 index fell 0.4 percent on Friday after closing at a record high of 1987.98 on Thursday, while benchmark 10-year Treasuries yield was little changed on the week at 2.48 percent. There has been steady improvement on the job front. Domestic jobless claims in the latest week fell to their lowest since early 2006, while monthly jobs gains have jumped by more than 200,000 in each of past five months, a level of strength last seen in the late 1990s.
While more Americans have returned to work, Federal Reserve Chair Janet Yellen told two Congressional panels earlier this month she remained worried about stagnant wage growth and a low inflation rate that is below the Fed’s 2 percent target.
Those concerns have supported a notion that the Fed is in no hurry to move away from its near-zero interest rate policy.
On Friday, US short-term interest rate futures implied that traders priced in a 53 percent chance of a Fed rate hike in June 2015 and a 75 percent chance of such a move a month later.
“We expect very little new information from the Fed next week. We have been given a clear map going into October,” Wieting said.
The Federal Open Market Committee, the Fed’s policy-setting group, is scheduled to announce whether it will further pare its bond purchases – currently at $35 billion a month – at 2:00 pm (1600 GMT) Wednesday.