Wall Street is abuzz eyeing the release of second-quarter gross domestic product (GDP) data due this Thursday, July 25. Indeed, with unemployment starting to inch up, economic growth data should provide some insight into the country’s economic trajectory heading further into the second half of the year. Will the stock market crash?
Well, maybe.
While there have been some signs of an economic slowdown recently, The Wall Street Journal projects GDP will come in fairly steady at a 1.9% annualized increase. This is higher than Q1’s 1.4% growth, but well below the 2.1% GDP level recorded in Q2 of last year.
If the forecasts hold true, it may offer a strong signal that the economy will hold up, even despite the lengthy duration of the Federal Reserve’s restrictive interest rates.
“It would also be consistent with an economy expanding at a pace modestly below its estimated potential and consistent with the disinflation observed in the first half of 2024,” noted Moody’s Analytics Economist Matt Colyar.
Others are even more optimistic about this week’s major economic data release. The Atlanta Fed’s GDPNow tool — which estimates GDP using a similar methodology used by the U.S. Bureau of Economic Analysis (BEA) — projects Q2 GDP growth will come out to 2.7%. This would mark the highest GDP reading since Q4 2023, when GDP climbed at a 3.4% annual rate.
Consumer spending is expected to continue holding up the ship this time around, as it has most of the past year. Indeed, it seems elevated interest rates and high inflation can’t curb consumer spending, which has maintained strong even in the face of adversity.
“Among the most important tailwinds in our view are record-high household wealth, rising real disposable income, and still historically low levels of unemployment,” Scott Anderson, Chief U.S. Economist at BMO, told Investopedia. “We could even see the drag of higher interest rates begin to fade over time, setting the economy up for a growth revival and a more tolerable inflation rate in 2025.”
What Does This Week’s GDP Report Mean For a Stock Market Crash?
Despite its recent selloff, stocks have generally performed quite well this year. Indeed, the S&P 500 is up almost 17% year-to-date (YTD) — and that’s after shedding nearly 2% of its value over the past week.
Economic data has certainly played a role in this year’s rally, but not nearly to the extent many expected. Even as stubborn inflation has failed to fall sufficiently to merit a rate cut in the first half of the year, stocks have continued to rise regardless. Not for nothing, this year’s artificial intelligence (AI) wave has pushed tech growth to astronomic levels, even as some other sectors have failed to keep up.
As such, expect Wall Street to respond to this week’s GDP release in kind. If there’s a major beat or bust, stocks will move. Otherwise, it should be relatively by the books, at least as it pertains to the stock market.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
