US stocks were slightly lower at the open on Thursday (July 28) but reversed course to gain in early afternoon trading, as a contraction in the U.S. economy for the second straight quarter raised expectations of a less aggressive monetary policy by the Federal Reserve. The Dow Jones was up 0.64% or 201 points at 12:18 pm ET. The Nasdaq 100 gained 0.24% and the S&P 500 fell by 0.62% at the same time.
Gross domestic product fell 0.9% at an annualized pace in the last quarter, according to the Commerce Department’s advance estimate. That follows a 1.6% decline in the first quarter and was worse than a Reuters survey for a gain of 0.5%. Officially, the National Bureau of Economic Research (NBER) declares recessions and expansions, and likely won’t make a judgment on the period in question for months if not longer. Two consecutive quarters of declines in growth are traditionally considered a recession regardless of what the NBER, the official arbiter of recessions, decides.
However, economists cast doubt on whether the economy is actually in a recession, citing other indicators indicating continued growth and persistent strength in the labor market. United States President Joe Biden also stated on Thursday that the country is not in a recession.
Speaking at the White House, he pointed to the “record” unemployment figures, “nine million” jobs added since he took office and business investments that are “at record rates” to support his claim.
“That doesn’t sound like a recession to me,” Biden concluded. However, businesses have been trimming their inventories, the housing market has buckled under rising interest rates, and high inflation has taken steam out of consumer spending. Plus initial jobless claims hit 8 month highs.
Wall Street also carried gains from the previous session when the U.S. Federal Reserve hiked interest rates by 75bps, as expected, while opening the door to smaller moves from the next meeting onwards, signaling a move to a more data-dependent stance. Fed Chairman Jerome Powell on Wednesday (July 27) said he expects the increases to tamp down inflation but he does not see the economy in recession.
