Markets Waver On Mixed Economic Data: 5 ETFs Moving Wednesday

Markets embraced an unexpected turn of events as Wednesday’s U.S. economic data releases fell short of market expectations.

The initial response was positive, with market participants interpreting the data as an indication of potentially easing inflationary pressures, thus lowering the specter of further interest rate hikes by the Federal Reserve. However, as the morning session progressed, concerns over a potential economic deceleration reemerged, paring back the advances in the stock market.

Q2 GDP Revised Lower, Employment Growth Missed Expectations in August

The Bureau of Economic Analysis lowered growth projections for the second quarter of the year. The revelation painted a picture of the U.S. economy expanding at a more tempered pace of 2.1% on an annualized basis in Q2, in stark contrast to the estimate, which had pegged growth at a more robust 2.4%.

The same report also unveiled that the PCE price index, a closely monitored inflation gauge by the Federal Reserve, was revised downward from 2.6% to 2.5% in Q2. A parallel adjustment was registered for the core PCE price index, dropping from 3.8% to 3.7%. As a result, Thursday’s PCE price index announcement for July will likely be awaited with less trepidation by investors.

Signals from the labor market continue to support the idea of a slowdown in new job additions, with attention turning to the upcoming Bureau of Labor Statistics report this Friday.

The ADP offered a preview by reporting an increase of 177,000 jobs in August. This marked a significant decrease compared to the upwardly revised 371,000 jobs in July and also fell short of the expected 195,000.

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Traders Lower Rate Hike Bets, Dollar Sinks

The U.S. dollar fell 0.5%, the largest daily drop since mid July, and is currently on track for its third consecutive session of decline.

Simultaneously, Treasury yields, reflective of market sentiment on future Fed rate hikes, took a precipitous drop. The yield on the 2-year note fell to 4.85%, the lowest since Aug. 11.

Implied probabilities derived from Fed futures assign a mere 9% chance of a rate hike in September, down from yesterday’s 14%. Looking ahead to November, the odds of a rate increase have ebbed from 49% to a 43% chance, CME Group’s Fedwatch tool showed.

Looking at major ETFs with over $15 billion in assets under management (AUM), here are the ones showing positive returns at 10:30 a.m. ET on Wednesday: