Markets respond to upbeat economic growth numbers

By Nancy L. Schultz | Nov 09, 2009

Investors, cheered by encouraging gross domestic product figures, drove market indices back toward their October highs Oct. 29. The Commerce Department’s estimate that the economy grew at an annual rate of 3.5 percent in the third quarter showed the strongest growth in two years. The data, higher than the 3.3 percent rate expected, comes in the wake of four straight shrinking quarters, the first time that had happened since the 1930s.

While economic recovery seems to have begun, underlying weaknesses are apparent. Third-quarter consumer activity was boosted by government stimulus programs, such as the first-time homebuyers’ tax credit and the Cash for Clunkers program. Lost in the shadow of the GDP numbers was that the newly jobless totaled a seasonally adjusted 530,000 last week, higher than the 521,000 economists had expected. Growth figures emerged as market historians noted that it was precisely 80 years ago that the market crash of October 28 and 29, 1929, foretold the Great Depression.

For the record, the Dow Jones Industrial Average (an unmanaged index of 30 widely held stocks) finished Oct. 29 at 9.962.58, a gain of 2.05 percent for the day. The NASDAQ Composite (an unmanaged index of common stocks listed on the NASDAQ National Stock Market) closed at 2,097.55, up 1.84 percent on the day, while the S&P 500 (an unmanaged index of 500 widely held stocks) moved 1,066.11, a gain of 2.25 percent.

World markets still open when U.S. GDP figures were announced generally rose well over 1 percent on the news. The International Monetary Fund raised its forecast for growth in Asia to approximately 2.8 percent this year and 5.8 percent in 2010. Both are higher than previous projections. In Europe, Norway’s Norges Bank became the first to boost interest rates since the financial crisis began, nudging its overnight rate up a quarter point to 1.5 percent.

As unpredictable as they are, current financial markets have been generally positive for several months now. If you have questions about the markets or see opportunities for your portfolio, please give me a call.

Past performance is not indicative of future results. Investors cannot invest directly in an index.
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