The news that U.S. economic growth in the third quarter had been revised upward to 3.5% from an earlier 3.2% has been a mixed blessing for the financial markets.
Higher growth has helped stocks resume their post-election rally.
But it hasn’t helped the bond market. Higher growth raises the odds that the Federal Reserve will be relatively aggressive in raising interest rates in 2017. The price for a 10-year Treasury fell and the yield rose to 2.56%. With higher growth comes increased fears of higher inflation. Which has pushed up prices in the TIPS market with the yield on the 5-year Treasury Inflation Protected Security falling to just 0.09%.
Higher growth and expectations for a more active Federal Reserve has also pushed the U.S. dollar higher. The Bloomberg Dollar Spot Index, which tracks the U.S. dollar against other major currencies, rose 0.1% to near the highest level in more than a decade.
The stronger dollar will, potentially, pose a challenge to fourth quarter corporate earnings that begin to be reported in January. A stronger dollar can cut into overseas sales by U.S. companies and lead to lower than expected earnings as weaker currencies are converted into dollars on corporate income statements.The news that U.S. economic growth in the third quarter had been revised upward to 3.5% from an earlier 3.2% has been a mixed blessing for the financial markets.
Higher growth has helped stocks resume their post-election rally.
But it hasn’t helped the bond market. Higher growth raises the odds that the Federal Reserve will be relatively aggressive in raising interest rates in 2017. The price for a 10-year Treasury fell and the yield rose to 2.56%. With higher growth comes increased fears of higher inflation. Which has pushed up prices in the TIPS market with the yield on the 5-year Treasury Inflation Protected Security falling to just 0.09%.
Higher growth and expectations for a more active Federal Reserve has also pushed the U.S. dollar higher. The Bloomberg Dollar Spot Index, which tracks the U.S. dollar against other major currencies, rose 0.1% to near the highest level in more than a decade.
The stronger dollar will, potentially, pose a challenge to fourth quarter corporate earnings that begin to be reported in January. A stronger dollar can cut into overseas sales by U.S. companies and lead to lower than expected earnings as weaker currencies are converted into dollars on corporate income statements.
