Market 10/26: Hotter-than-expected GDP raises concerns about interest rates

Q3 GDP posts strongest growth in 2 years

Despite higher interest rates and geopolitical tensions, US Q3 GDP rose 4.9%, higher than the 4.3% estimate. This is the largest growth since Q4 2021 and the 5th consecutive quarter of GDP growth.

The Q3 GDP acceleration mainly came from consumer spending, federal government spending, as well as increases in exports and residential housing investment.

Private investment rose 8.4% year-over-year, the strongest increase since Q4 2021.

Personal consumption rose 4% year-over-year, much higher than the +0.8% in the previous quarter. This is the strongest increase since Q4 2021.

Along with increased spending, Q3 personal savings were $776.9 billion, down sharply from $1.04 trillion in Q2, returning to 2014-2017 levels.

Personal saving rate - as a percentage of disposable personal income - reached 3.8% in Q3, down from 5.2% in Q2.

The pace of real disposable income growth slowed compared to Q2.

While GDP rose stronger than expected, the core price index was lower than estimated.

PCE up 3.5% from previous quarter, higher than 2.7% expected
Core PCE (excluding food and energy) up 2.4% from previous quarter, down sharply from 3.7% in Q2. This is the weakest increase since late 2020.

September durable goods orders post strongest increase in over 3 years

After two consecutive months of decline, September durable goods orders rose 4.7% from the previous month (much higher than the expected 1.8%). This is the largest monthly increase since July 2020.

Orders excluding transportation up only 0.5% from previous month
Orders excluding defense up 5.8% vs -0.7% previous month
Defense spending down 14.4% from previous month but non-military aircraft spending up 92.5% from previous month.

September pending home sales unexpectedly rise slightly

After a 7.1% drop in August, September pending home sales were expected to fall another 2.0% from the previous month. However, actual data showed a 1.1% increase from the previous month (most positive since January 2023), equivalent to a -13.1% year-over-year decline (smallest drop since May 2022).

Pending home sales index rises slightly from historic low.

This unexpected increase may be related to stabilizing mortgage rates in September, but unlikely to continue in October.

Continuing claims rise to highest since May

Initial jobless claims rose from 200,000 last week to 210,000 (slightly higher than expected), but still near record lows.

Continuing claims rose for the 4th straight week to the highest since May, at 1.79 million (above 1.7 million for 3 straight weeks).

$38 billion 7Y bonds auction successful

Yield came in at 4.908% vs 4.910% forecast. The small difference also helped cool the bond market. 10Y also retreated from 4.99% early morning to 4.87%, helping stabilize investor sentiment.

Q3 earnings updates for some major companies

Meta

Meta's Q3 revenue posts strongest growth since 2021 as digital advertising recovers.

Revenue: $34.15 billion, higher than $33.56 billion expected
EPS: $4.39, higher than $3.63 estimate
Daily active users (DAUs): 2.09 billion, higher than 2.07 billion estimate
Monthly active users (MAUs): 3.05 billion, in line with estimate
Average revenue per user (ARPU): $11.23, higher than $11.05 expected

IBM

IBM's Q3 revenue and profit beat expectations as software sales revenue rises 8%

Revenue: $14.75 billion, up 4.6% YoY, above expected $14.73 billion
- Software sales revenue: $6.27 billion, up 8% YoY
- Consulting segment revenue: $4.96 billion, up 6% YoY
EPS: $2.2, above estimate of $2.13