The US economy grew at a slower pace than expected in the first quarter, with the Bureau of Economic Analysis’s advance estimate of first-quarter US GDP showing a growth rate of 1.6% annually, lower than consensus forecasts. Economists had predicted a growth rate of 2.5% for the period, making the actual reading significantly lower. This figure was also lower than the fourth quarter GDP growth, which had been revised up to 3.9%.
This slower growth rate comes amid concerns of a potential economic slowdown due to a restrictive interest rate policy from the Federal Reserve. Despite this, the overall healthy state of the economy in the first quarter has been a point of discussion among economists and the Fed to justify holding rates high while waiting for inflation to decrease. Federal Reserve Chair Jerome Powell emphasized the strength of the labor market and progress on inflation as reasons to maintain the current policy.
The confidence in the labor market and its potential positive impact on economic growth has led many equity strategy teams to increase their year-end targets for the S&P 500 (^GSPC). With a positive outlook on the economy, experts believe the market rally could continue to expand regardless of any potential interest rate changes from the Federal Reserve. RBC Capital Markets’ head of US equity strategy Lori Calvasina highlighted the improving perceptions of the US economy as a key factor influencing the equity market.
As the economy faces uncertainties and challenges, monitoring economic indicators like GDP growth and labor market performance will be crucial in determining future monetary policy decisions by the Federal Reserve. The overall confidence in the US economy and the potential for sustained growth continue to be key factors influencing market trends and investor sentiment.