Stock Market, Dollar Traders Eyeing Treasury Yields after GDP Beats Forecast

Dow Jones Industrial Average and S&P 500 Index futures moved higher during the premarket session on Thursday after the economy grew at a faster-than-expected pace in the third. The NASDAQ Composite firmed but remained negative because of disappointing earnings from Meta Platforms and ahead of the release of earnings from Apple and Amazon after the close.

At 12:38 GMT, Dow Jones futures are trading 32133.00, up 261.00 or +0.82%. S&P 500 Index futures are at 3844.50, up 3.50 or +0.09% and the NASDAQ Composite futures contract is trading 11387.50, down 58.50 or -0.51%.

US GDP Beats the Forecast

U.S. GDP increased at a 2.6% annualized pace for the period, against the Dow Jones estimate for 2.3% growth. The report, the first quarter of positive growth for 2022, eased investors’ concerns about a recession, CNBC reported.

Treasury Yields Rise Slightly on GDP News

It wasn’t much but the benchmark U.S. 10-year Treasury yield rose slightly following the GDP report. The limited price action suggests traders are still digesting the data.

However, we can conclude that since yields didn’t fall, traders feel confident that the Federal Reserve will raise rate by 75 basis points next Wednesday. Furthermore, the better than expected growth also indicates the Fed may have room to make one more super-sized rate hike in December.

This is an important development because stock market and other investors have been saying this week that a weakening economy could force the Fed to scale back the pace of its aggressive rate hikes beginning in December.

Dollar Surges after ECB Raises Rates, GDP Dampens Hopes of Softer Fed

The U.S. Dollar Index is trading higher after the Euro plunged following a widely expected 75 basis point rate hike by the ECB earlier today. The price action suggests that bullish traders wanted central bankers to be more bullish in their monetary policy statement.

The greenback is likely being supported because the strong GDP number didn’t cement the chances of the Fed slowing down its rate hikes starting in December. This could mean the Fed can go big with a 75-basis point rate hike in December if necessary.

In other news, gold prices fell as Treasurys nudged higher and the dollar strengthened.

Short-Term Outlook

Keep your eyes on the Dow and S&P 500 for a possible reversal to the downside if Treasury yields start to move slightly higher.

Stock market investors were betting on a weaker GDP number and buying in advance of the report on the hopes the Fed would ease a little on its rate hikes in December, but this may not be the case.

If the 10-year yield begins to gain traction over 4.0% then look for stocks to turn lower.