Tech Stocks Buoy Early Losses To Post Impressive Returns in First Quarter

US stocks rose a bit by the end of the week, touching on new record highs on Friday thanks to better-than-expected first quarter economic growth that offset disappointing earnings reports from earlier in the season. 

Indeed, both the Standard & Poors 500 and the Nasdaq Composite saw record highs, largely thanks to big players like Amazon and Ford compensating less-than-stellar earnings from Intel and Exxon Mobil. As a whole, the S&P 500 index is actually up 17 percent on the year, with the first quarter earnings report proving things are a little better than investors had feared when the Federal Reserve ruled on holding interest rates as they are.

Taking a look at other numbers, the United States Department of Commerce said first-quarter gross domestic product grew by 3.2 percent, on Friday morning. This beat an estimate of 2.5 percent growth, which is slightly higher than the 2.2 percent increase posted in the final quarter of last year.  This gave first quarter GDP growth the fastest rate in the last six years. 

The numbers also indicate that higher state and local government spending outpaced the losses from the extended federal shutdown that started 2019 in turmoil.  International trade also seems to have helped GDP growth at a time when consumer spending growth has slowed to only 1.2 percent. This is its slowest pace in the better part of the last year, and at a time when business fixed-investment growth also slowed—to 2.7 percent—cutting its pace in half since the last quarter.

Right now, nearly 80 percent of the 178 S&P 500 companies to report earnings, have all surpassed their first quarter estimates and this has contributed to a boost that puts the Standard & Poors at only 0.5 percent shy of its record, which posted in late September.  Moving forward, analysts expect that earnings will probably decline 0.3 percent from the last year.  Most important, though, while a drop might be inevitable, it is important to remember that the economy is cyclic and that last year’s April forecast suggested the fall would be as much as 2.3 percent.