Fears of a stock market crash are swirling ahead of the first Gross Domestic Product (GDP) data release of the year on Thursday, April 25. Indeed, with Wall Street seemingly on the precipice of a potentially brutal correction, investors will be hoping for signs of life in the GDP report.
So, what do you need to know about this month’s biggest economic data release?
Well, the first-quarter GDP report should offer insight into whether the country’s economic growth has managed to stay the course even despite restrictively high interest rates.
If you recall, U.S. GDP climbed at an annual rate of 3.4% in the fourth quarter of 2023. While this was a deceleration from Q3’s 4.9% reading, it’s still quite strong, especially given the supposedly contractionary monetary policy in place.
With stocks continuing to waver since the start of Q2, the GDP has gained an even higher burden of proof that the country isn’t spiraling toward recession or, at the very least, a nasty selloff.
The S&P 500 has lost almost 5% of its value since the start of April as investors lose faith that the Federal Reserve will cut rates in a timely fashion. This has put a damper on investor sentiment dramatically, evident from CNN’s well-watched Fear and Greed Index, which recently swung into the “Fear” zone for the first time since November 2023.
It is worth noting that this GDP report will actually be an advanced reading. The final Q1 GDP figure should be released in June, though there typically isn’t too much of an adjustment from the advanced report to the final number.
Wall Street Holds Breath Over a Stock Market Crash Following Crucial GDP Report
The AtlantaFed’s GDPNow forecasting model currently estimates Q1 GDP growth of 2.9% in the first quarter of the year. This is relatively in line with Wall Street projections, as high rates will likely have weighed down on production and economic growth from Q4, 2023.
That said, some economists are a bit more pessimistic.
Indeed, economists polled in a Bloomberg survey earlier this month forecast an average GDP growth of just 1.9% across the first three months of the year. Should this come to fruition, fears may be stoked that the country’s economic growth may deteriorate into recession as the Fed continues to hold off on rate cuts.
As usual, the pressing economic report could have significant implications for the Fed’s policy trajectory. Should U.S. economic output come out too hot, it will likely give the Fed further ammo to hold off cutting rates. On the flip side, if it falls dramatically below projections in Q1, that could inch the central bank ever-so-slightly closer to lowering interest rates.
With unemployment and consumer spending holding strong, economists generally believe the Fed may not begin cutting rates until well into the summer.
“The strong economy has prevented inflation from continuing on its disinflationary path, which means the Fed will need to wait to cut interest rates,” Kathy Bostjancic, chief economist at Nationwide Mutual Insurance, told Bloomberg.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
