Here is What is Happening in Markets: April 25
Markets are in the red to kick off the trading day on Thursday after the Commerce Department reported that the economy had slowed.
Gross domestic product (GDP) grew 1.6% in the first quarter, the Bureau of Economic Analysis reported Thursday, less than the 2.2% economists had forecast. The growth rate was a sharp slowdown from the last quarter of 2023, when the U.S. economy grew by 3.4%.
As markets slipped, broad index ETFs also fell. SPY, the SPDR S&P 500 ETF Trust fell 1.2% after the open while DIA, the SPDR Dow Jones Industrial Average ETF Trust lost 1.6%. According to etf.com data, SPY was one of the most active ETFs on Thursday with a trading volume of nearly 15 million as markets dipped.
Bond yields jumped Thursday as investors digested the data about a weakening economy. Yields have an inverse relationship to prices and as bond prices fell, TLT, the iShares 20+ Year Treasury Bond ETF also slipped, falling nearly 1% in midmorning trading. Fixed income traders have been on a rollercoaster ride in 2024 as investors questioned whether the Fed would cut interest rates—and when.
BND, the Vanguard Total Bond Market ETF and AGG, the iShares Core U.S. Aggregate Bond ETF were also under pressure on Thursday. Both funds invest in the wider bond market.
Slowing economic growth would typically be good news for investors betting on rate cuts. If the economy starts the weaken, the belief is that the Fed will cut rates to help stimulate economic growth. But personal consumption expenditures (PCE) rose 3.4% in the first quarter, compared to a 1.8% jump in the last quarter of 2023.
The acceleration in PCE—the Fed's preferred inflation gauge—highlights persistent and stubborn levels of inflation. With inflation here to stay, today's report torpedoed investor hopes that rate cuts were coming any time soon.
According to the CME Fed Watch Tool, investors aren't expecting rate cuts until September.
The tech-heavy Nasdaq was also in the red after Meta reported their earnings on Wednesday. QQQ, the Invesco QQQ Trust slid over 1.5% while MAGS, the Roundhill Magnificent Seven ETF which invests in the Magnificent Seven stocks, sank 2.5%.
While Meta reported beats in both earnings and revenue, the tech giant's outlook for second quarter earnings fell short of expectations.
