Stocks rise after America’s economy grew more than expected

People walk by Goldman Sachs headquarters in Manhattan on December 16, 2022 in New York City. Goldman Sachs, the global investment bank, has announced that it plans on cutting up to 8% of its employees early next year as world economies and markets continue to struggle with inflation, the war in Ukraine and China's Covid policies among other issues.
Why Goldman Sachs says a recession isn't coming
02:18 - Source: CNN Business

What we covered here

  • The preliminary fourth-quarter GDP report came in stronger than expected, growing at an adjusted annualized rate of 2.9%. That’s still slower than the 3.2% in the third quarter.
  • Southwest posted a quarterly loss and warned more losses lie ahead after its service meltdown. Other airlines posted strong quarterly profits.
  • Stocks moved higher on the economic news.
17 Posts

Biden: Wall Street analysts wrong about recession predictions

US President Joe Biden spoke today about the economy at Steamfitters Local 602 in Springfield, Virginia,.

President Joe Biden on Thursday trumpeted the latest GDP report that showed the US economy expanded by an annualized 2.9% during the fourth quarter, capping off a year that saw 2.1% economic growth, according to Commerce Department data released Thursday morning.

Biden was in Springfield, Virginia, to deliver his first major economic speech of the year. 

“Last summer, plenty of Wall Street analysts were saying that by the end of the year there would be a recession,” he said. “They’ve been telling me since I got elected, we were going to be in a recession. Every time we’ve gotten better. It turns out, thank God, they were wrong.”

Biden also touted the strong labor market, historically low unemployment rate and the declines in inflation during recent months.

Dow rallies for fifth straight day as soft landing hopes grow

US stocks were up Thursday, after the government reported that the economy grew at a faster pace in the fourth quarter than economists were anticipating. It was the fifth consecutive day of gains for the Dow.

That data, coupled with a drop in the number of people filing for weekly unemployment benefits and strong durable goods orders from businesses, helped fuel market expectations that the economy may avoid a recession this year.

The market is also betting that if inflation continues to cool, the Federal Reserve could hit the pause button on interest rate hikes sometime later this year, a development that would likely increase the chances of an economic soft landing.

Shares of Chevron (CVX) rose nearly 5% after announcing a huge stock buyback program and increase to its dividend…news that irked the White House given the high price of oil. BuzzFeed’s stock (BZFD) soared, more than doubling after the digital media company announced plans to use artificial intelligence technology to generate content.

The Dow rose more than 200 points, or 0.6%.

The S&P 500 was up 1.1%.

The Nasdaq Composite jumped 1.8%.

As stocks settle after the trading day, levels might still change slightly.

Bed Bath & Beyond plunges again on debt default worries

People walk past the entrance to a Bed Bath & Beyond retail store along Sixth Avenue in New York, on September 4, 2022. 

The end could be near for struggling retailer Bed Bath & Beyond warned in a regulatory filing Thursday that it received a notice of default from its lender, JPMorgan Chase. Shares of Bed Bath & Beyond (BBBY) plunged more than 20% on the news, to about $2.56 a share.

According to the Securities & Exchange Commission filing, Bed Bath & Beyond defaulted “on or around” January 13. As a result, creditors are demanding immediate payment.

Bed Bath & Beyond could be forced to file for Chapter 11 bankruptcy reorganization due to its financial woes.

The company said in its SEC filing Thursday that “at this time, the Company does not have sufficient resources to repay the amounts under the Credit Facilities and this will lead the Company to consider all strategic alternatives, including restructuring its debt under the U.S. Bankruptcy Code.”

Bed Bath & Beyond added that it is also cutting costs, lowering capital expenditures and closing stores and distribution centers.

Stocks up in midday trading

Traders work on the floor of the New York Stock Exchange on January 26.

Investors continued to cheer good news about the economy. All three major market indexes were higher around lunch time.

Chevron (CVX) led the Dow following the news of its huge stock buyback plan and dividend increase. Tech giants Salseforce (CRM), Microsoft (MSFT) and Apple (AAPL) were also among the Dow winners.

The Dow inched up about 40 points, or 0.1%.

The S&P 500 rose 0.4%.

The Nasdaq Composite gained 0.8%.

Mastercard CEO surprised by 'remarkably resilient' consumers

Interest rates have soared. The housing market has weakened. Retail sales tumbled during the holidays. But the head of credit card giant Mastercard isn’t too worried.

“While macroeconomic and geopolitical uncertainty persists, consumer spending has been remarkably resilient,” said Mastercard CEO Michael Miebach in the company’s earnings release Thursday.

Miebach added on a conference call with analysts that consumer “spending patterns have largely normalized relative to the effects of the pandemic with the notable exception of China.”

Shares of Mastercard (MA) fell about 2% in midday trading though. The company’s outlook is a little more sanguine. Chief Financial Officer Sachin Mehra said on the conference call with analysts that the “vast majority” of its markets “are kind of growing and growing at a healthy pace, but they’re not growing at an accelerating pace.” 

Credit card rivals Visa (V), American Express (AXP) and Discover (DFS) all fell slightly Thursday too. So did the stock of Synchrony (SYF), which reported earnings earlier this week and noted that it expected a “mild recession” and rising unemployment rate.

Chevron's massive buyback draws ire of White House

A gas pump is filling up a vehicle at a Chevron gas station on December 5, 2022 in Houston, Texas.

Chevron was the top-performing Dow stock of 2022, surging more than 50% thanks to a spike in crude oil prices. Now, Chevron is looking to further reward its shareholders…but it is not making any friends in Washington as a result.

Chevron announced a $75 billion share repurchase program late Wednesday. When companies use cash to buy their own stock, it reduces the overall number of shares outstanding and typically leads to an increase in earnings per share as a result. Chevron also boosted its quarterly dividend to shareholders, raising it 6% to $1.51 a share.

Shares of Chevron (CVX) rose nearly 4% on the news Thursday.

Companies often tout dividends and buybacks as prudent uses of cash. But many in Washington are annoyed by the fact that oil giants haven’t taken more steps to use their windfall profits to give workers even bigger pay increases or invest in drilling capacity in order to pump more crude to increase supply and meet demand.

White House Assistant Press Secretary Abdullah Hasan took note, tweeting that “for a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it.”

Worrisome sign? More small US companies are losing money

The US economy continues to grow, but small businesses aren’t all reaping the rewards of this expansion. That could be bad news if/when there actually is a recession.

According to data from Torsten Slok, chief economist with Apollo Global Management, about 40% of companies in the Russell 2000 index (which looks at small cap stocks) were unprofitable over the past year.

To put that into context, only about 15% of the companies reported losses over the previous 12 months during the late 1990s…just before the 2001 recession, after the dot-com bubble imploded.

The percentage of companies posting losses spiked in 2001. It did so again during the Great Recession of 2008 and the brief Covid-induced recession of 2020. Slok is concerned that even more small companies will start to bleed red ink if the economy enters another downturn.

“During recessions, the share of unprofitable firms rises. This is not surprising,” Slok wrote, adding that if this trend continues, more than half of the companies in the Russell 2000 could wind up losing money.

Strong GDP report is hiding 'terrible' data, says this strategist

Shoppers visit the American Dream Mall during Black Friday on November 25, 2022 in East Rutherford, New Jersey.

If you look at all the data that came out Thursday morning, it’s tempting to come to the conclusion that the US economy is still in pretty good shape. Not so fast, says one market expert.

Raheel Siddiqui, senior investment strategist at Neuberger Berman, said he thinks investors have to dig deeper in the GDP report.

“I live in the world of data,” Siddiqui said. “Today’s data was terrible, but most won’t tell you that.”

Real disposable personal income, for example, fell more than 2% in the fourth quarter from a year ago. That’s a sign of how inflation is impacting consumer spending.

Siddiqui thinks inflation continues to be a problem for the economy… and that the Fed is going to act accordingly to tame it. He believes there is a greater chance of more aggressive rate hikes than the market is willing to admit. Traders are currently expecting a small rate hike next week… a quarter point. But Siddiqui said a half point isn’t out of the question.

“The Fed is hoping that if they continue to raise rates, it will create a negative wealth effect. Spending slows and stocks come down,” he said.

“The Fed is not winning this game, so I would not be surprised if the Fed does a 50 basis point [half-point] hike to make the market take them seriously,” he added. “If I were [Fed Chair Jerome] Powell, it’s something I would consider.”

Stocks post solid gains as economy keeps growing

US stocks rose after the opening bell as investors treated good economic news as good news for the markets. The nation’s economy grew at an annualized pace of 2.9% in the fourth quarter, surpassing consensus forecasts. What’s more, the number of Americans filing for weekly jobless claims continued to fall and durable goods orders rose more than expected.

In corporate news, shares of Elon Musk’s Tesla (TSLA) surged nearly 10% thanks to strong sales and earnings. Software giants IBM (IBM) and SAP (SAP) both fell in early trading. The two tech companies are the latest to announce layoffs.

The Dow gained about 100 points, or 0.3%.

The S&P 500 was up 0.6%.

The Nasdaq Composite rose 1.1%.

Stock futures slightly higher after GDP report

A view of the New York Stock Exchange on Wall Street in New York City on January 18.

The economy grew at a slightly faster pace than expected in the fourth quarter. And jobless claims continued to fall. What’s more, durable goods orders surged. But Wall Street didn’t blink much.

Futures were pointing to a somewhat flat to decent gains for the Dow, S&P 500 and Nasdaq before the economic data deluge. And they were still mostly unchanged afterwards.

It could be that investors realize that this data is backwards looking and is unlikely to change the minds of policy makers on the Federal Reserve all that much. A quarter-point rate hike next week is still the most likely scenario.

But investors are still not sure what the Fed will do next? Market bulls are hoping the central bank will pause…and possibly even begin to cut rates later this year if the economy slows. Still, there is no evidence of a severe slump just yet, particularly since the jobs data remains so strong. That’s why some investors are even predicting a so-called soft landing, in which the economy slows but does not enter a recession.

Weekly initial jobless claims fall to 186,000

First-time claims for unemployment benefits fell for the second week in a row to 186,000 for the week ending January 26, according to Department of Labor data released Thursday.

That’s a decrease of 6,000 from the previous week’s revised level of 192,000.

The data comes just days ahead of a Federal Reserve meeting to determine whether the central bank needs to continue to raise interest rates aggressively in order to cool the economy.

The Fed has been hoping for a softening in the labor market, but the steady level of initial claims, which are considered a proxy for layoffs, continue to show that the labor market remains tight.

Initial weekly claims are now at their lowest level since April 2022.

The US economy grew by 2.9% in the fourth quarter, more than expected

Shoppers in the SoHo neighborhood of New York on December 28, 2022. 

The US economy expanded again during the fourth quarter, registering solid growth even as consumers and businesses battled inflation and historically high interest rates.

Gross domestic product — the broadest measure of economic activity — increased at an annualized rate of 2.9% from October to December last year, according to Commerce Department data released Thursday.

That’s a slowdown since summer, when the economy saw growth of 3.2% in the third quarter — but an improvement on the first half of the year, which showed two consecutive quarters of contraction.

Economists were expecting fourth-quarter GDP to grow at an annualized adjusted rate of 2.6%.

For 2022, GDP expanded 2.1%, according to the Commerce Department report.

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American, JetBlue and Alaska Air all report profitable fourth quarter

A JetBlue jet moves along the runway at Laguardia Airport on November 10, 2022 in the Queens borough of New York City.

American Airlines, JetBlue and Alaska Air all reported profitable fourth quarters, although JetBlue and Alaska disappointed investors.

JetBlue reported earnings per share of 22 cents, a bit better than the 20 cents forecast by analysts surveyed by Refinitiv. But it also warned it expects a loss of between 35 cents to 45 cents a share, far worse than the forecast of a 4 cent a share loss.

JetBlue also was the first US airline to report a full-year loss. While most airlines enjoyed a return to profitability due to a strong rebound in demand and fares across the industry, JetBlue reported losses in the first half of the year as it wage a bidding war for Spirit Airlines.

American Airlines, which had given bullish guidance for the quarter earlier this month, exceeded the raised expectations, earning $1.17 a share, 3 cents better than forecast and enough to give it a profit for the year.

Alaska Air reported EPS of 92 cents, 2 cents less than forecasts.

Shares of Alaska were narrowly lower in pre-market trading on the miss, while JetBlue was off 1% on its guidance. American shares were up 1%

All airlines had reported losses a year earlier as the surge in Covid cases at that time depressed demand for travel. Those losses continued in the first quarter of 2022. But the industry has been broadly profitable since then, although Southwest reported a large fourth quarter loss earlier Thursday on its December service meltdown.

Southwest posts quarterly loss and warns more losses are ahead after service meltdown

Southwest Airlines planes are seen at the Austin-Bergstrom International Airport (AUS) in Austin, Texas on January 22.

Southwest Airlines reported a loss for the fourth quarter because of the company’s service meltdown over the holiday travel season, and it warned the costs from those problems will result in another loss in the first quarter.

The airline was forced to cancel more than 16,700 flights between December 21 and 29, roughly half its schedule during that period. It had already announced that would cost it somewhere between $725 million and $825 miilion. Thursday, Southwest said that resulted in an adjusted net loss in the quarter of $226 million. Still it managed to report an adjusted annual profit of $723 million, a turn around from $1.3 billion it lost in 2021.

It said it expects another loss in the first quarter due to the continued impact and costs associated with meltdown. The first quarter is typically the slowest and least profitable period for US air travel. However, Southwest said it is encouraged by strong bookings for March.

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Stocks mixed ahead of GDP report

Investors were gearing up for the first reading of fourth-quarter GDP.

Economists are expecting the economy grew by 2.6% on an annualized basis in the final quarter of 2022, which would be down from the third quarter’s 3.2% growth. The slowdown is partly due to shoppers pulling back amid higher interest rates, and exports falling as consumers shifted their spending from goods to services. 

Stocks: US stocks were mixed ahead of a big day of major economic reports, including the first look at fourth-quarter GDP. Dow futures were down 15 points. S&P 500 futures rose 0.2%. Nasdaq Composite futures were 0.5% higher.

Fear & Greed Index: 64 = Greed

Oil & gas: US oil prices rose 0.9% to $81 barrel. Average US gas prices rose to $3.50 a gallon.

Exclusive: Goldman Sachs says even a near-default on US debt could spark a recession and market mayhem

The U.S. Capitol building seen on January 19 in Washington, D.C.

A full-blown debt ceiling crisis has the potential to stop the US economy in its tracks, according to the top economist at Goldman Sachs.

“If there were any doubt about the US government’s ability or willingness to make interest and principal payments on time, that could have very, very adverse consequences,” Jan Hatzius, the chief economist at Goldman Sachs, told CNN in an interview.

The United States hit the debt ceiling last week, forcing Treasury Secretary Janet Yellen to make accounting maneuvers to avoid breaching that $31 trillion borrowing limit.

If Congress fails to lift the debt ceiling in time, Hatzius said investors will worry there is a chance of a missed payment on US Treasuries – which are “maybe the most important asset in the global economy.”

Unlike many of its peers on Wall Street, Goldman Sachs is relatively bullish on the US economy, with Hatzius telling CNN that America will likely avoid a recession through the 2024 presidential election.

However, a debt ceiling crisis is a key risk to that optimistic outlook.

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Tesla reported record earnings but tighter profit margins

Brand new Tesla cars sit in a parking lot at the Tesla factory on October 19, 2022 in Fremont, California. 

Tesla reported record profits for the fourth quarter and the full year, but its profit margins were tighter due to higher costs, recent price cuts, and sales in the quarter that were weaker than hoped.

The leading electric vehicle maker posted adjusted earnings of $1.19 per share in the quarter, up from 85 cents a share a year earlier, and its previous record of $1.07 a share in the first quarter. Analysts surveyed by Refinitiv had forecast EPS of $1.13.

For the full year, the company had adjusted earnings per share of $4.07, up from $2.26 in 2021.

But the closely-watched automotive gross margin fell to 25.9% from 27.9% in the third quarter and 30.6% in the fourth quarter a year ago.

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