EVEN if data this 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 on Wednesday, is forecast to have grown 3.2 per cent. Growth had shrunk 2.9 per cent in the first quarter due to a harsh winter and spending cuts.
Still, some lacklustre 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 JP Morgan and Goldman Sachs to shave their second-quarter outlook by 0.1 percentage point to 2.6 per cent and 3.0 per cent 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 bonds and cash.
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.
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 $35bn a month – on Wednesday.