By Jessica Menton -
U.S. stocks extended gains Thursday, with the Dow Jones Industrial Average jumping 200 points after the economy rebounded in the second quarter. The U.S. economy bounced back after labor disputes at West Coast shipping ports led to lackluster growth in the first three months of the year.
The rally comes a day after U.S. stocks recorded their best day since 2011, snapping six consecutive days of declines, after China unveiled fresh stimulus measures in a bid to shore up growth in the world’s second-largest economy.
The Dow (INDEXDJX:.DJI) gained 224 points, or 1.4 percent, to 16,510. The Standard & Poor's 500 index (INDEXSP:.INX) rose 27 points, or 1.4 percent, to 1,968. And the Nasdaq composite (INDEXNASDAQ:.IXIC) gained 70 points, or 1.5 percent, to 4,767.
Global markets traded higher Thursday after China’s benchmark Shanghai Composite closed up 5.4 percent, topping the psychological 3,000 level. The gains helped the index close higher for the first time in five trading sessions.
The rally helped European stocks trade higher, with the pan-European Stoxx 600 up more than 3 percent. Germany's DAX and France's CAC rose 3.2 and 3.3 percent, respectively.
Shanghai Composite Index (Closing) - 1 Year | FindTheData
U.S. stocks continued to rally Thursday on a stronger-than-expected gross domestic product (GDP) report, a day after the Dow surged 4 percent to its third-biggest one-day point gain in history. The gains Thursday helped pull the Nasdaq composite out of correction territory.
U.S. GDP, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 3.7 percent in the April-June quarter, the Commerce Department said in its second estimate Thursday. The revision is higher than the government’s preliminary estimate last month that showed the economy grew at a seasonally adjusted annual rate of 2.3 percent.
Economists had forecast the U.S. economy grew at a seasonally adjusted annual rate of 3.2 percent in the second quarter, analysts polled by Thomson Reuters said.
The upward revision was because consumption and investment (both private and public) were much stronger than previously expected. “The economy regained a massive amount of momentum in the second quarter and all the evidence from July’s activity and employment data suggests that momentum continued into the third quarter,” Paul Ashworth, chief economist at Capital Economics, said in a research note.
US Current-dollar Gross Domestic Product | FindTheData
The higher revision could create a dilemma for the Fed amid China’s economic slowdown. In June, policy officials were split on whether to raise rates once or twice this year, even when they were forecasting GDP growth would be as low as 1.8 percent to 2 percent. Capital Economics now forecasts growth is now more likely to be somewhere between 2 percent and 2.5 percent.
Economists are looking ahead to the annual Economic Policy Symposium in Jackson Hole, Wyoming, that kicks off Thursday, which brings together many of the world's central bankers. Stanley Fischer, the Federal Reserve’s vice chairman, is scheduled to give a speech that could provide further clues about the Fed's next move following multiple bouts of volatility in the global markets this week.
“Because of the recent global stock market wobble, officials have found another excuse to delay raising interest rates. We don’t think a September rate hike is completely off the table, but we’ll just have to wait and see what officials have to say at this weekend’s Jackson Hole gathering,” Ashworth said.
The Commerce Department maintained its upward growth rate of 0.6 percent for the first quarter, after last month reversing previous estimates that showed the economy shrinking in the January-March period.
The first-quarter number was distorted by the unwinding of a backlog of exports and imports at West Coast ports. The cold winter also played a role in the slowdown, economists say. The West Coast port slowdown had a dramatic impact on shipping: As dockworkers and their employers negotiated a new contract, the disruptions prevented manufacturers from receiving inventories on time, slowing production.