CNBC Daily Open: Don’t bet against the U.S. economy

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Larger in reality
The U.S. economy grew an annualized 2% from January to March, according to the Commerce Department’s third and final estimate of first-quarter gross domestic product. That’s a big jump from the initial estimate of 1.3% and higher than the 1.4% Dow Jones consensus — consumer spending and exports were stronger than previously thought.

Boosted by banks
U.S. stocks rose Thursday, buoyed by gains in the banking sector as investors celebrated positive results in the Federal Reserve’s annual stress test for banks. Asia-Pacific markets traded mixed Friday. Japan’s Nikkei 225 slipped around 0.6% as Tokyo’s inflation reading for June came in at 3.1% year on year. However, South Korea’s Kospi added 0.5% on the news that the country’s industrial production in May rose 3.2% month over month — economists expected production to decline.

China’s businesses falter
China’s factory activity in June shrank for a third consecutive month, according to data from the National Bureau of Statistics. Non-manufacturing activity — which includes sectors like finance, health care and real estate — grew, but at its slowest pace this year. China’s monetary stimulus “just isn’t working,” according to China Beige Book, a U.S.-based research company.

Successful spaceflight, but shares sink
Virgin Galactic successfully completed its first commercial spaceflight yesterday. Named Galactic 01, the flight took off in New Mexico and carried three paying passengers, all of whom are members of the Italian Air Force. Despite the smooth mission, Virgin Galactic shares sank more than 10% yesterday and a further 1.9% in extended training.

[PRO] IPOs come to life
The initial public offering market’s stirring to life again. Three big IPOs — Savers Value Village, Kodiak Gas Services and Fidelis Insurance — were priced Wednesday and started trading yesterday. CNBC Pro’s Bob Pisani breaks down their performance, picks a winner and explains what this means for the general IPO market.

Don’t fight the Fed, goes the saying in markets. Traders might want to add a new maxim: Don’t bet against the U.S. economy.

Despite endless warning of an inevitable recession, the U.S. economy defiantly expanded 2% in the first quarter of this year. It was pushed up by a rebound in exports, which rose 7.8% after falling 3.7% in the fourth quarter of 2022.

More significantly, consumer spending jumped 4.2%, the fastest quarterly pace since the second quarter of 2021 — back when households were still flush with cash from stimulus checks. I previously argued that the U.S. economy might just avoid a recession thanks to the strength of consumers — and it seems this latest data point corroborates that theory.

There are other signs the economy still refuses to buckle. Initial jobless claims for the week ended June 24 fell to 239,000, according to a report from the Labor Department. That figure’s 26,000 lower than the previous week and well below economists’ estimates, implying an unexpected improvement in the job market. 

Meanwhile, stock markets rose after a banner day for big banks. The S&P 500 advanced 0.45%, the Dow Jones Industrial Average added 0.8%, but the Nasdaq Composite closed flat. All three indexes are on track to end the first half of the year at incredible numbers. So far, the S&P has gained 14.5%, the Dow’s up 2.9% and the Nasdaq has popped nearly 30% and is heading for its best first half since 1983.

Can markets sustain that incredible momentum? The personal consumption expenditures price index, coming out later today, will provide some clues. It’s the inflation gauge the Fed watches mostly closely, so if the PCE surprises with a hotter-than-expected reading, consecutive rate hikes might be on the way.

Still, given the resilience of the markets and the economy in the face of 10 consecutive hikes, perhaps they could continue surprising us as we head into the second half of 2023.