Wall Street heads for new record highs on GDP figures

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Wall Street stock markets headed for fresh all-time highs as investors applauded better than expected GDP data, strong technology company earnings and a pledge of ongoing support for financial markets by the Federal Reserve.

The technology-focused Nasdaq Composite index opened 1.1 per cent higher and the broader-based S&P 500 gained 0.8 per cent, with both bourses rising above their record closing highs achieved on Monday.

Copper traded on the London Metal Exchange rose above $10,000 a tonne, levels not seen since 2011. Brent crude, the international oil marker, jumped by 2.2 per cent to $68.76 a barrel.

The dollar flatlined and US government bond prices fell sharply, however, as the exuberant mood on equity markets weakened demand for haven assets.

The US economy grew at an annualised rate of 6.4 per cent in the first quarter, data released on Thursday showed, beating forecasts of economists polled by Reuters for a 6.1 per cent gain.

The report of the second-fastest quarterly growth for the US since 2003, boosted by trillions of dollars worth of government stimulus spending, came a day after the nation’s central bank said the economy would still require heavy monetary policy support.

The Federal Reserve on Wednesday said indicators of economic activity and employment had strengthened but continued fragility in the labour market meant it was too early to withdraw its £120bn of monthly bond purchases that have boosted financial markets throughout the pandemic.

“This combination of a really constructive growth outlook and a Fed that’s clearly not taking the punchbowl away is a great mix for risk assets,” such as equities and commodities, said Kristen Macleod, co-head of global forex sales at Barclays.

The dollar index, which measures the currency against those of trading partners, traded flat around its weakest since early March.

“Typically when you see a broader risk-on environment that is a scenario where the dollar tends to lag,” Macleod said.

The yield on the 10-year US Treasury climbed 0.06 per cent to 1.679 per cent, as investors banked on rapid economic growth fuelling inflation, which erodes the returns from fixed interest securities.

A rise in the 10-year yield tends to dent valuations of long-term growth stocks by raising the opportunity cost of holding shares in companies that do not pay high dividends. Technology companies outperformed on Thursday, however, after Apple recorded double digit quarterly sales growth and Facebook reported a surge in advertising revenues.

Shamik Dhar, chief global economist at BNY Mellon, cautioned that although these first-quarter performances were strong he did not expect technology stocks to continue rallying as global economies reopened from lockdowns and investors rotated away from winners of the pandemic.

“You might see tech indices supported for a while, but fundamentally the story is one that supports cyclical businesses,” Dhar said, referring to companies such as energy producers and manufacturers whose fortunes are pegged to economic growth.

Investors had turned away from technology stocks and piled into more cyclical shares ahead of the latest quarterly earnings season, which will include results from Amazon later in the session.

The MSCI growth index, used by investors to benchmark the performance of shares in technology and other businesses whose peak earnings are far into the future, has risen about 7 per cent so far this year.

The collection of value stocks tracked by MSCI across industries such as banking and energy has now risen about 13 per cent. They had lagged behind during the early stages of the pandemic, giving them high dividend yields and other features of being heavily oversold.

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