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Market Looks Past GDP Decline — What You Need to Know

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Stocks rose Wednesday, as GDP for the first quarter fell. The market continues to look past the recession, stretching valuations as earnings estimates remain under pressure.  

All three major U.S. indices were up considerably Wednesday, with the S&P 500 up as much as 2. %. The 10 year treasury yield slipped to 0.6%, a marginal move down, as investors and the Federal Reserve have nibbled at the safe bond as stocks have rallied. 

GDP for the first quarter contracted 4.8%, which investors had expected as the quarter reflected two months of normal activity and a March month mostly reflecting lockdowns and layoffs. Wall Street is quick to point out that the second quarter will likely show a double digit decline in GDP, although the market continues to look past this, sending one-year price-to-earnings multiples on the S&P 500 to over 20 times, reflecting optimism that reopenings will be successful. 

The Federal Reserve will speak Wednesday afternoon. With the federal funds rate already at 0% and the Fed pledging an unlimited stimulus program, there may not be much more it can do to push stocks higher.  

While Wednesday’s rally was broad, with some cyclical sectors like banking seeing stocks rise, the market was getting some help from big tech again. 

Google   (GOOGL) - Get Alphabet Inc. Report rose 8.4% after it posted revenue for the quarter of just over $41 billion, beating estimates. Advertising revenue was strong, which many had doubted would be the case, a positive sign for consumer spend. Cloud revenue grew 52% year-over-year to over $2 billion. 

Microsoft  (MSFT) - Get Microsoft Corporation Report, Facebook  (FB) - Get Meta Platforms Inc. Report and Apple  (AAPL) - Get Apple Inc. Report have earnings this week. These stocks rose 2%, 4% and 2% Wednesday. 

Starbucks  (SBUX) - Get Starbucks Corporation Report shares fell 0.75%, after the company posted $6 billion in sales, a contraction year-over-year, but beating estimates. The company missed earnings per share estimates by more than 5%, but the descent sales number reflected that consumer brand with strong digital presences can avoid disastrous sales declines. Starbucks also raised prices across geographies. 

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