United States economic growth slowed over the second quarter; however, the equities market and stock exchange traded funds were unfazed, with the Dow jumping over its 13,000 mark, on the renewed prospects for further Fed stimulus..
The SPDR Dow Jones Industrial Average (NYSEArca: DIA) increased 1.4% and the iShares S&P 500 Index (NYSEArca: IVV) rose 1.8% at last check Friday.
The Commerce Department revealed that the U.S. gross domestic product expanded 1.5% over the second quarter, the weakest since the third quarter of 2011, reports Lucia Mutikani for Reuters.
Consumer spending, which accounts for 70% of the economy, rose 1.5%, compared to the 2.4% in the last three months.
The economy added an average 75,000 jobs a month over the second quarter, whereas the first three months saw an average 226,000 additional jobs per month. The unemployment rate was 8.2% in June – the economy requires growth of 2% to 2.5% to stabilize the unemployment rate.
As the data points to a slowing economy, market observers argue that now is the time the Federal Reserve could revisit additional stimulus measures.
“The economy has lost altitude and flying pretty close to stall speed. Monetary policy is the only game in town and additional easing is highly likely,” Sung Won Sohn, an economics professor at California State University Channel Islands, said in the article.
However, others believe we have not fallen far enough to warrant further quantitative easing.
“The Fed will pull the trigger on QE3 if the sense is we are getting into trouble, but if we are just weak and somewhat limping forward, they will prefer to stay pat,” Adolfo Laurenti, deputy chief economist at Mesirow Financial, said. “They do not want to use whatever ammunition they have left too soon, they want to keep some just because things might get even worse later on.”
SPDR Dow Jones Industrial Average
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Max Chen contributed to this article.