March 5, 2021

Stocks Fall After G.D.P. Data

A disappointing report on the nation’s second-quarter economic activity spurred a steep initial decline in stocks in the United States on Friday, adding to the malaise in the markets as investors wait for an outcome of the debt ceiling debate in Washington.

The three main indexes raced lower by about 1 percent shortly after the market opened, responding to the Commerce Department’s report that gross domestic product grew at an annual rate of 1.3 percent in the second quarter, well below analysts’ forecasts. The department also revised the first-quarter annual rate to 0.4 percent from earlier estimates of 1.7 percent.

But through the course of the trading session, stocks retraced some ground, possibly in response to the prospect of a resolution related to the other main market factor on Friday: the debt ceiling impasse.

At the close, the Dow Jones industrial average, retreating for the sixth consecutive trading day, was down 96.87 points, or 0.79 percent, to 12,143.24.

The Standard Poor’s 500-stock index, a broader measure of the market, lost 8.39 points, or 0.65 percent, to 1,292.28. The Nasdaq composite index fell 9.87 points, or 0.36 percent, to 2,756.38.

The broader market as measured by the S.P. ended the week down about 3.9 percent, its largest weekly loss in more than a year. It also recorded its third consecutive monthly loss. The last time the broader market closed lower for three straight months was in 2008, for the months of September, October and November.

Commerce Department revisions to earlier G.D.P. figures suggested that the recovery was weaker than initial estimates had let on. Consumer spending, accounting for about 70 percent of G.D.P., was virtually unchanged in the second quarter.

Stephen Wood, Russell Investments’ chief market strategist, noted that many economists had expected a slow second quarter, for reasons including severe weather and the supply chain disruptions that followed the earthquake in Japan.

But changes to the G.D.P. estimates for the first quarter and the quarters before it weighed especially heavily on sentiment.

“We were clearly looking at a second-quarter slow patch,” he said. “The revision to Q1 caught the market by surprise.”

The lack of a strong recovery highlights the difficulties Congress is facing in its deadlocked deliberations to raise the debt ceiling for the American government because some businesses are delaying decisions amid the uncertainty. A recovery in the job market and consumer spending is seen as crucial in stimulating the pace of the economy.

While it was another day of selling, investors had few alternatives for their money.

“The debt ceiling debate, if you can call it that, is an ongoing drama,” Mr. Wood said. “Where do you go given that Treasuries are in the teeth of the debt ceiling negotiations? This is uncharted waters.”

Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, described the G.D.P. report as “roundly disappointing.”

He also said that the stalemate in the debate in Congress was having an impact on the markets.

“The Treasury market is trading higher this morning as yet another day goes by without a viable plan for resolving the debt ceiling impasse,” said Mr. Giddis in an early commentary, referring to prices.

As Treasury prices rose, the yield on the benchmark 10-year note fell sharply to 2.79 percent in late afternoon trading, compared with 2.96 percent late Thursday.

Lawmakers have to reach a deal by Aug. 2 or the government might face a shortfall and be unable to meet its financial obligations.

Declines in European markets steepened after the G.D.P. report was released in the United States. The FTSE 100 in London fell 0.99 percent to 5,815.19, the DAX in Frankfurt was down 0.44 percent to 7,158.77 and the CAC 40 in Paris fell 1.07 percent to 3,672.77. The euro rose to $1.439.

Catherine Rampell contributed reporting from Washington.

This article has been revised to reflect the following correction:

Correction: July 29, 2011

An earlier version of this article referred imprecisely to the number of consecutive trading days the Dow Jones industrial average had declined. Friday was the sixth.

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