U.S. economic growth in the third quarter was revised up to 3.9%, a GDP booster shot that backs stock bulls’ big bet that the strengthening economy is supportive of stock prices. The government revised its first read on third-quarter GDP to 3.9%, from 3.5%. The growth rate of the economy easily topped consensus opinion, which had forecast a dip in the third-quarter growth rate to 3.3%. After a contraction in the first quarter due to weather, GDP rebounded to 4.6% in the second quarter of the year. The trend, thanks to stronger consumer and business spending, is firming.
Stocks, of course, are having a record-setting year. Driving the gains is a bet by investors that the U.S. economy is regaining its form after years of subpar growth, and will start growing at a more steady 3% clip — a growth rate that is more friendly to corporate earnings, job creation and other economic positives. Stocks have also gotten a boost from global central banks boosting their stimulus efforts to boost flagging growth.
The U.S. economic resurgence comes at a time when economies in the eurozone and Japan are at or near recessionary levels, and China is seeing its white-hot growth rate slowing. The Standard & Poor’s 500 closed Monday at 2069.41, its 46th record close of the year. The index is up 12% in 2014 and on track for its first three-year run of 10%-plus gains since the late 1990s. Stock futures firmed up after the GDP report, with the S&P 500 up nearly 4 points, or 0.2%, in pre-market trading.
If there’s a negative to today’s strong GDP number, it is that it could spur a more rapid improvement in the unemployment rate, which could spur the Federal Reserve to start hiking interest rates sooner than expected next year. The general consensus is the Fed will start raising rates in mid-2015. The faster growth “is another reason to expect the Fed to begin normalizing interest rates sooner than expected next year,” Paul Ashworth, chief U.S. economist at Capital Economics told clients in a note. “We still anticipate the first rate hike coming in March next year.”