The Dow Jones industrial average closed at an all-time high Wednesday, erasing all of its losses since its last record close Dec. 31 despite a plunge in the latest quarterly report on the U.S. gross domestic product, the chief measure of the nation’s economic output.
The Dow Jones industrial average rose 45.47 points, or 0.3 percent, to 16,580.84, four points above the previous record.
The Standard & Poor’s 500 index rose 5.62 points, or 0.3 percent, to 1,883.95. The Nasdaq composite rose 11.01 points, or 0.3 percent, to 4,114.56.
The trading day had started on a low with the announcement by the U.S. Commerce Department that GDP growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, far less than 1.1 percent forecast by economists. Conservatives and some economists blamed President Barack Obama’s jobs policies.
But others shrugged off the weak reading as the result of rough winter weather that held down retail spending and productivity.
“This is certainly a mediocre report but not as terrible as the headline looks,” said Guy Berger, United States economist at RBS. “Final domestic demand is growing at the same pace as it did in the fourth quarter, and consumer spending was much better than we had thought.”
Stocks took off in afternoon trading after the Federal Reserve, in a statement following its April policy meeting, said it would reduce its monthly bond purchases to $45 billion, down $10 billion, because it was confident the economy is gaining strength and the job market needs less support.
The fed made no mention of the disappointing GDP report.
“It’s in the rear-view mirror,” said Greg McBride, senior financial analyst at Bankrate.com. “We’re one month into the second quarter, and we’ve already seen some indicators that economic growth will get stronger.”
At the same time, the Fed reaffirmed its plan to keep short-term interest rates low to bolster the economy “for a considerable time” after its bond purchases end, likely late this year.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.65 percent from 2.70 percent on Tuesday. The yield on the note has fallen from 3 percent at the start of the year.
As bond yields remain close to historical lows, stocks will likely remain attractive to investors, said David Kelly, Chief Global Strategist at JPMorgan funds.
“What else are you supposed to do with your money?” Kelly said. “For lack of something better to do with it, money is going to move back into equities.”
Among top gainers, Pepco Holdings surged $3.97, or 17.4 percent, to $26.76 after it agreed to be acquired by nuclear power company Exelon for $6.83 billion, creating a large electric and gas utility in the mid-Atlantic region. Exelon will pay an 18 percent premium to the company’s $23.10 closing price on Tuesday.
Sealed Air rose $1.72, or 5.3 percent, to $34.31 after the food packaging company’s earnings easily beat Wall Street’s expectations. The company also said it was on track to post full-year earnings at the upper end of the range of its forecast.
More than 60 percent of S&P 500 companies have reported first-quarter earnings. Analysts currently expect earnings to have grown by 1.7 percent in the period, according to S&P Capital IQ data. That compares with growth of almost 8 percent in the fourth quarter and 5.2 percent in the same period a year ago.
Despite the stock market’s record, some pessimism remains. Dan North, chief economist at Euler Hermes North America, a large insurer, said that even if growth picks up later this year, the rate will still most likely be below the postwar average of just over 3 percent, said .
“We’ve been living in sub-3 percent land, and people have gotten used to that as the new normal,” North said. “But it’s not. It’s anemic.”
Wednesday’s economic data kicks off a busy few days for economists and investors, and American markets were little changed after the open. In addition to the Fed announcement, the Labor Department will announce on Friday the latest figures on the job market in April. The consensus calls for a jump in payrolls of 215,000, with the unemployment rate falling by 0.1 percent to 6.6 percent.
On Wednesday, the payroll processor ADP said that American businesses increased hiring in April, adding 220,000 jobs in April, the most since November and up from 209,000 in March. The ADP numbers cover only private businesses and often diverge from the government’s more comprehensive report.
If the government’s actual payroll gain meets or exceeds the consensus, it would be the best month for hiring since November, and also echo some other more positive signs for the economy in recent days, like healthy consumer confidence and strong orders for durable goods.
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