Growth of the American Economy Encourages Investors on Wall Street

On Wall Street, leading indices jumped more than 1 percent on Thursday, thanks to an unexpectedly strong growth of the American economy and a drop in oil prices, which encouraged investors.

The Dow Jones index surged by 212 points or 1.85 percent, to 11,715 points, while the S&P index gained 1.48 percent, reaching 1,300 points. The Nasdaq index rose by 1.22 percent, to 2,411 points. The positive market sentiment is primarily attributed to the fact that the U.S. gross domestic product grew by 3.3 percent in the second quarter, rather than the 1.9 percent indicated by preliminary data. This is due to strong export growth and solid domestic consumption, which alleviated investors’ fears of an economic slowdown.

"The GDP data is encouraging, and that is what we all want to see: positive shifts in the economy," says Bruce Zaro, a strategist at Delta Global. As a result, stock prices of industrial giants such as Boeing and Caterpillar have significantly increased. After three days of continuous growth, oil prices fell by more than $2.5 yesterday, to $115.5 per barrel, after the International Energy Agency (IEA) announced that it would intervene with its reserves if Hurricane Gustav disrupts oil and gas supplies from the Gulf of Mexico.

This caused a drop in stock prices of oil companies but positively affected other sectors as it reduced investors’ fears of declining consumer spending and corporate profits. Stock prices in the financial sector also rose significantly after Fannie Mae reported that several financial and other top executives had been replaced. This was interpreted as the management’s determination to protect capital and reduce losses. The price of Fannie Mae’s stock rose by more than 20 percent, while its competitor Freddie Mac increased by about 11 percent.

Even more, the stock price of MBIA, the world’s largest bond insurer, jumped nearly 35 percent after the company announced it would reinsure its portfolio worth $184 billion. This spurred price increases across the entire financial sector, leading the S&P financial index to rise by 4.5 percent. European stock prices also rose on Thursday. On the Frankfurt Stock Exchange, the DAX index jumped 1.57 percent, to 6,420 points, while the FTSE index on the London Stock Exchange increased by 1.3 percent, to 5,601 points.  (H)