Here’s what a 2.9% growth in GDP means for the U.S. stocks

S&P 500 is trading slightly up on Thursday after the Bureau of Economic Analysis said the U.S. economy ended the final quarter of 2022 in good shape.

GDP growth beats expectations

According to the Commerce Department, gross domestic product grew at an annualised pace of 2.9% in the fourth quarter – slightly better than 2.8% that the economists had forecast.

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In the prior quarter, though, the growth rate was a bit higher at 3.2%. Nonetheless, a bunch of other economic data also came in green this morning.

New home sales climbed to 616,000 in December versus 610,000 expected. Unemployment claims fell to the level last seen in April 2022 and the monthly durable goods report was also positive on Thursday.

For the year, the benchmark index is now up 6.0% year-to-date.

U.S. stocks could go further up

Based on the encouraging economic data, a Deutsche Bank analyst now expects the ongoing rally in the equities market to meaningfully extend further in the coming weeks.

Binky Chadha is not anticipating a recession in the first quarter. To that end, he expects the S&P 500 to hit the 4,500 level in that timeframe.

We view the rally as having further to go. While a number of leading indicators have fallen steeply, raising the alarm, there are several reasons for a continued pushing out of the timing of a potential recession.

Such reasons include strength of corporate balance sheets, insufficient layoffs, strong consumer, and pandemic-driven excess savings. He agrees that the market could tank nearly 20% from here once the recession hits but expects it to recover all the way back to 4,500 level again by year-end.