By Chuck Mikolajczak
NEW YORK (Reuters) – The Dow and S&P 500 closed higher after a late rally on Wednesday, erasing declines from most of the session after data showed the economy contracted in the first quarter for the first time in three years.
In a session filled with economic data, the Commerce Department said its advance gross domestic product report showed a 0.3% contraction for the first quarter, falling short of expectations for 0.3% growth, according to economists polled by Reuters.
A separate report on monthly consumer spending, which accounts for more than two-thirds of economic activity, showed a jump of 0.7% in March, topping expectations for a 0.5% rise.
Both the GDP and consumer spending data appeared to be affected by the trade war, as businesses and consumers pulled forward spending to avoid tariffs.
Wednesday’s reports join a series of data releases this month that have pointed to an increasingly uncertain outlook for the U.S.
economy, as the fallout from the Trump administration’s steep tariffs and unpredictable trade policy takes effect.
A gauge of the labor market indicated U.S. private payrolls growth slowed more than expected in April, as the ADP National Employment Report revealed an increase of only 62,000 jobs, well short of the 115,000 estimate, after a downwardly revised 147,000 gain in March.
On the plus side, a gauge of inflation showed price pressures cooled in March, stemming some fears for a possible stagflation environment, when growth slows and prices rise.
Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia, said he was surprised GDP numbers were not worse, given the import surge.
“Underneath, however, real final demand remains super strong.
Those who underestimate the U.S. consumer, do so at their own peril.”
The Dow Jones Industrial Average rose 141.74 points, or 0.35%, to 40,669.36, the S&P 500 gained 8.23 points, or 0.15%, to 5,569.06 and the Nasdaq Composite lost 14.98 points, or 0.09%, to 17,446.34.
The Dow had fallen as much as 1.9%, the S&P lost as much as 2.3% and the Nasdaq shed as much as 2.9% during the session.
Traders are now pricing in a full percentage point interest rate cut from the Federal Reserve by the end of the year, although recent comments from Fed Chair Jerome Powell and other officials have indicated the central bank is likely to be cautious before adjusting policy.
Consumer staples were among the best performing sectors, up 0.7% in part due to a 3.8% climb in chocolate and snack company Mondelez after its quarterly results topped expectations.
After the closing bell, Meta Platforms rose more than 4% after its quarterly earnings beat estimates, and Microsoft shot up nearly 6% after its results topped revenue estimates as businesses ramped up spending on AI tools.
Concerns about a deceleration in AI investment had been spurred earlier in the session by Super Micro Computer, which cut its third-quarter forecasts due to delays in customer spending, while Snapchat parent Snap said it would not provide a second-quarter financial forecast, the latest in a string of companies in various sectors that have withdrawn their outlooks.
Super Micro tumbled 11.5% and Snap plummeted 12.4%.
Dow component Caterpillar shares were choppy after its disappointing quarterly results, ending with a 0.6% gain.
After a sharp slump following the April 2 tariff announcements by U.S.
President Donald Trump, stocks have rebounded, but the Dow and S&P 500 still registered monthly declines, while the late-day rally lifted the Nasdaq to a slight monthly gain.
For the month, the S&P 500 fell 0.76%, the Nasdaq rose 0.85%, and the Dow fell 3.17%.
Wednesday marks 100 days since Trump took office.
Changes in trade policies and tariffs have heightened uncertainty and fueled volatility, negating initial enthusiasm after his November election over the possibility of business-friendly policies such as deregulation and tax cuts.
Declining issues outnumbered advancers by a 1.19-to-1 ratio on the NYSE and by a 1.28-to-1 ratio on the Nasdaq.
The S&P 500 posted 10 new 52-week highs and three new lows while the Nasdaq Composite recorded 39 new highs and 85 new lows.
Volume on U.S.
exchanges was 16.97 billion shares, compared with the 19.57 billion average for the full session over the last 20 trading days.
(Reporting by Chuck Mikolajczak in New York; Additional reporting by Caroline Valetkevitch and Saeed Azhar in New York, Lisa Mattackal and Purvi Agarwal in Bengaluru; Editing by Rod Nickel)
