Wall Street traders sent stocks down and bonds up after the latest round of economic data signaled momentum is slowing.

Just 24 hours before the release of the Federal Reserve’s favorite price gauge, a report showed the U.S. grew at softer pace — as both spending and inflation were marked down. Economic cooling could bolster the case for the Fed to start cutting interest rates this year. But that might also imply weaker consumption, and ultimately become a concern for Corporate America.

“The economic data today are a double-edged sword,” said Chris Zaccarelli at Independent Advisor Alliance.

The S&P 500 slid to 5,235, led by tech losses. U.S. officials slowed the issuing of licenses to chipmakers such as Nvidia Corp. and Advanced Micro Devices Inc. for large-scale AI accelerator shipments to the Middle East, according to people familiar with the matter. In late hours, Dell Technologies Inc. sank as its revenue increase failed to impress investors.

Treasury two-year yields dropped five basis points to 4.92 per cent. The dollar fell.

Traders had issues with live pricing for the S&P 500 Index and Dow Jones Industrial Average for more than an hour on Thursday morning in New York. 

Individual stocks and exchange-traded funds continued to print normally throughout. That, along with trading of futures contracts, helped traders navigate the disruption.

“At the time it was out, I wasn’t worried,” said Mike Zigmont at Harvest Volatility Management. “Futures were still trading, so you could use them to get the SPX level. Most traders that know enough, didn’t care.”

Fed Bank of New York President John Williams said he expects inflation to continue falling in the second half of this year, adding that elevated borrowing costs are restraining the economy.

Zaccarelli at Independent Advisor Alliance says he’s long been of the belief that the economy matters more than lower rates for the sake of propping up stock prices.

“Of course, they are interrelated because all things being equal, the economy is likely to stay out of recession if interest rates are lower than they are now, but ultimately it is the economic expansion – and continuation of corporate profits – that are the most important thing in the medium and long term,” he noted.

His base case this year is for inflation to remain relatively sticky and for the Fed to stay on the sidelines for most – if not all – of 2024, but also for the economy to continue to expand and for corporate profits to continue to grow.

“So the stock market should remain in a bull market, not withstanding the occasional pullback along the way,” he concluded.

Gross domestic product rose 1.3 per cent annualized in the first three months of the year, below the previous estimate of 1.6 per cent, Bureau of Economic Analysis figures published Thursday showed. The economy’s main growth engine — personal spending —  advanced 2.0 per cent, versus the previous estimate of 2.5 per cent.

“Sum it all up and you have an economy that has come off the boil – and needed to – but remains on track for continued growth,” said Jim Baird at Plante Moran Financial Advisors. “Inflation remains a primary challenge to consumers and policymakers – one that is still seemingly poised to be resolved, particularly as wage growth and housing inflation normalize.”

“It was a bond-friendly round of data,” said Ian Lyngen at BMO Capital Markets, who expected investors to “square positions” ahead of Friday’s personal consumption expenditures price index.

The Fed’s first-line inflation gauge is about to show some modest relief from stubborn price pressures, corroborating central bankers’ prudence about the timing of interest-rate cuts.

“The name of the game is still inflation and interest rates,” said Chris Larkin at E*Trade from Morgan Stanley. “Stay tuned for tomorrow’s PCE price index release, because it could dominate market sentiment until next Friday’s jobs report.”

Signs that the economy may be cooling enough to pave the way for rate cuts, coupled with strong corporate profits, have proven to be good for stocks.

That’s according to an analysis by Bank of America Corp.’s strategists, who crunched the data going back to 1950 to determine that prior quarters of declining economic growth and rising corporate earnings saw the S&P 500 advance 3.6 per cent, on average. 

That’s higher than a 2 per cent mean gain seen when both corporate profits and the US gross domestic product saw a boost.

Corporate Highlights:

Salesforce Inc. shares dropped the most in almost two decades after projecting the slowest quarterly sales growth in its history, renewing concerns that the company will be left behind in the artificial intelligence boom.

Kohl’s Corp. reported first-quarter sales and earnings that fell short of estimates and lowered its guidance, as demand for apparel and home goods remained weak.

Best Buy Co. reported better-than-expected profitability in the first quarter, even as sales woes deepened and consumers remained on the sidelines with their electronics purchases.

US regulators vowed to maintain tougher scrutiny of Boeing Co.’s aircraft production after the planemaker presented a detailed plan to address quality breakdowns in its factories.

Bank of America Corp.’s sales and trading team is on track to report second-quarter revenue growth in the low single digits, with investment banking up 10 per cent to 15 per cent from a year earlier, Chief Executive Officer Brian Moynihan said.

Key events this week:

  • Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
  • China official manufacturing and non-manufacturing PMI, Friday
  • Eurozone CPI, Friday
  • US consumer income, spending, PCE deflator, Friday
  • Fed’s Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.6 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 1.1 per cent
  • The Dow Jones Industrial Average fell 0.9 per cent
  • The MSCI World Index fell 0.3 per cent

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2 per cent
  • The euro rose 0.3 per cent to $1.0830
  • The British pound rose 0.2 per cent to $1.2731
  • The Japanese yen rose 0.5 per cent to 156.84 per dollar

Cryptocurrencies

  • Bitcoin rose 1.6 per cent to $68,521.76
  • Ether rose 0.2 per cent to $3,756.37

Bonds

  • The yield on 10-year Treasuries declined seven basis points to 4.54 per cent
  • Germany’s 10-year yield declined four basis points to 2.65 per cent
  • Britain’s 10-year yield declined five basis points to 4.35 per cent

Commodities

  • West Texas Intermediate crude fell 1.7 per cent to $77.92 a barrel
  • Spot gold rose 0.2 per cent to $2,341.92 an ounce

This story was produced with the assistance of Bloomberg Automation.