US stocks hit record highs as American economy grows 6.4% in first quarter

LaToya Harding
·Contributor
·5 min read
WASHINGTON, DC - APRIL 28: President Joe Biden addresses a joint session of Congress, with Vice President Kamala Harris and House Speaker Nancy Pelosi (D-Calif.) on the dais behind him, on Wednesday, April 28, 2021. Biden spoke to a nation seeking to emerge from twin crises of pandemic and economic slide in his first speech to a joint session of Congress. (Melina Mara/The Washington Post via Getty Images)
Economists polled by Reuters had forecast GDP to grow at a 6.1% pace in the January-March period. The American economy rebounded more quickly thanks to two additional rounds of COVID-19 relief stimulus from Washington. Photo: Melina Mara/The Washington Post via Getty Images

US stocks hit record highs on Thursday as the American economy grew 6.4% in first quarter, the Commerce Department said in its advance estimate of GDP.

It was was the second-fastest GDP growth pace since the third quarter of 2003 and followed a rate of 4.3% in the final quarter of 2020.

Economists polled by Reuters had forecast GDP to grow at a 6.1% pace in the January-March period. 

The American economy rebounded more quickly in the latest three months thanks to two additional rounds of COVID-19 relief stimulus from Washington.

The S&P 500 (^GSPC) climbed 0.60% after opening, before retreating slightly, and the tech-heavy Nasdaq (^IXIC) climbed 0.36% before falling to trade flat. The Dow Jones (^DJI) edged 0.11% higher at the time of the European close.

In a separate report from the US Labour Department, 553,000 people filed for state unemployment benefits during the week ended April 24, compared to 566,000 in the prior period.

Though initial jobless claims have dropped from a record 6.149 million in early April 2020, they remain well above the 200,000 to 250,000 range viewed as consistent with a healthy labour market.

“The US is speeding ahead in the race to recovery, spurred on by a strong industrial recovery and stimulus-led consumer spending," Robert Alster, CIO at wealth manager Close Brothers Asset Management, said.

"The vaccination programme is powering full steam ahead, and the subsequent increase in freedom of movement has caused a much needed boost to the services sector. We did see some setbacks in March, like the contraction in durable goods orders following the semi-conductor chip shortages, but as yet no hurdle has been high enough to cause US growth to stumble."

READ MORE: The chip shortage bringing car factories to a standstill

In Europe, stock markets closed in the red despite the FTSE 100 (^FTSE) and CAC (^FCHI) spending most of the day in positivity territory.

Watch: European stocks climb on US stimulus announcement 

London's benchmark index closed 0.03% lower, just below the 7,000 points mark it managed to cross again earlier in the session, while the French CAC fell 0.11%.

The DAX (^GDAXI) in Germany, which which is full of major exporters and companies that are dependant on reopening trade from the industrial side, was 0.9% lower.

A string of earnings reports were moving markets in London on Thursday. Smith & Nephew (SN.L), Unilever (ULVR.L), Standard Chartered (STAN.L), and BT Group (BT-A.L) were all at the top of the FTSE 100 risers.

Smith & Nephew resumed its full-year guidance following a 12% revenue increase in the first quarter, while Unilever post better-than-expected sales due to a boom in home cooking during lockdown.

Standard Chartered reported an 18pc rise in first-quarter profits and BT rose after the Telegraph revealed that is in talks with several companies over the future of BT Sport.

On the opposite end of the scale, shares in NatWest Group (NWG.L) slumped despite the bank beating profit forecasts.

READ MORE: NatWest beats profit forecast as it unlocks £100m loss provision

Sentiment was boosted earlier on in the session by US president Joe Biden unveiling big spending plans in Congress, and the Federal Reserve leaving monetary policy unchanged on Wednesday night.

In his first speech to a joint session of Congress, Biden revealed a huge $4tn (£2.9tn) investment plan for jobs, early education and social care.

He called the spending a "once in a generation investment in America itself", as he presented the American Jobs Plan and the American Families Plan.

He described the American Jobs Plan as "a blue-collar blueprint to build America" that would boost investment in public transport, high-speed broadband and roads and bridges. He added that the plan would be guided by the battle against climate change.

The $1.8tn American Families Plan will focus on children and aim to provide free pre-school for children aged three to four, paid family and medical leave and tuition-free community college.

WATCH: Joe Biden's full speech to Congress

On Wednesday night the policy-setting Federal Open Market Committee (FOMC) held interest rates at near-zero as part of its commitment to aggressive economic stimulus.

The central bank said the coronavirus vaccine rollout had improved the US economy, adding that it remains optimistic about the rebound. It described the most adversely affected industries as having “shown improvement.”

READ MORE: Fed holds rates near zero, notes rising inflation as US economy 'strengthened'

“Last night’s Fed statement saw the US central bank acknowledge the recent improvement in US economic data, but also reiterate that they remained a long way short of the type of outcome-based data needed to alter their current policy stance, nixing any prospect of a taper in the near term,” said Michael Hewson of CMC Markets.

Meanwhile in Asian trading, markets in Japan were closed for a holiday. The Hang Seng (^HSI) jumped 0.78% and the Shanghai Composite (000001.SS) closed 0.52% higher.

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