Thursday's Markets Update (October 26, 2023)

29 Oct 2023 by rate3

On Thursday, the economy grew 4.9% in Q3, and the Nasdaq fell to its lowest level since May as investors focused on higher rates for longer as well as disappointing earnings results. BTC and ETH paused on technicals, still hanging inside the 34-35K and 1.85-1.75K ranges, respectively.

Details

The economy grew at a 4.9% annualized rate in Q3 of 2023 (compare with 2.1% in Q2), the most since late 2021. Consumer spending, exports, and private inventories were the main drivers of growth. Government spending also increased faster than in the previous quarter. However, nonresidential investment contracted for the first time in two years.

Comment

There are a few reasons why the US economy grew so much in the third quarter of 2023 despite a record high Fed rate:

Consumers started to buy durable goods in expectation that their prices would get higher. This is known as inflation hedging. When consumers expect prices to rise, they tend to buy more goods and services now, rather than later. This can lead to a surge in demand, which can boost economic growth.
Government spending on wars and socials increased. Government spending can have a significant impact on economic growth. When the government spends more money, it increases the demand for goods and services, which can lead to job creation and economic growth.
Also a factor that contributed to the strong economic growth in the third quarter was that consumers have been spending heavily on travel, dining out, and other leisure activities during the vacation period, in anticipation of better times ahead. This has boosted the retail and hospitality sectors, which are two of the largest drivers of the economy.
In addition to these factors, the US economy may have also benefited from a strong labor market and a rebound in exports.