Stocks Mixed as Strong Economic Data Reshapes Fed Outlook

U.S. equity markets struggled for direction on Thursday following a surprisingly robust GDP report that forced investors to recalibrate expectations for Federal Reserve interest rate cuts. The S&P 500 and Dow Jones Industrial Average hovered near the flatline, while the Nasdaq Composite experienced slight pressure as technology stocks reacted to the shifting monetary policy landscape.

Economic Strength Presents a Double-Edged Sword

The Commerce Department's advance estimate showed the U.S. economy grew at a 3.3% annualized rate in the fourth quarter, dramatically exceeding economist forecasts of 2.0%. While signaling underlying economic resilience, the data also suggested persistent inflationary pressures that could keep the Federal Reserve in a holding pattern.

"The GDP print was a classic 'good news is bad news' moment for markets," said chief market strategist at a major financial institution. "The economy is clearly not rolling over, which means the Fed has little urgency to pivot to an easing cycle. The March rate cut is now almost entirely priced out."

Market Reactions and Sector Movements

Following the data release:

  • Treasury yields climbed, with the 10-year note rising above 4.1%
  • The probability of a March rate cut fell below 50% in futures markets
  • Rate-sensitive technology stocks faced particular scrutiny
  • The dollar strengthened against major currencies

Market participants now turn their attention to Friday's Personal Consumption Expenditures (PCE) price index report, the Fed's preferred inflation gauge, for further clues on the central bank's policy path.