Strong GDP Lifts S&P 500 to New High Ahead of PCE

Yields mixed today on GDP data. The yield curve flattened today after Q2 GDP unexpectedly rose to 3.3%, highlighting a still robust US economy and calming recession jitters. Short-term yields rose 1-2 bps as a result, pushing the 2-year yield to 3.63%. Meanwhile, long-term yields declined 2-5 bps, with the 30-year yield now at 4.88%. Markets are now looking ahead to tomorrow’s inflation data, where core PCE YoY is expected to rise to 2.9%, which would be tied for the highest level since March 2024. Elsewhere, the S&P 500 closed at an all-time high today, now above 6,500 for the first time on a tech-led rally.

GDP beats expectations. Annualized QoQ GDP came in at 3.3%, above estimates of 3.1% and outpacing the prior quarter’s 3.0%. The data points to the US economy expanding faster than expected, primarily driven by an uptick in business investment (+5.7%) which has largely been sustained by a few key sectors including transportation equipment and intellectual property products. Positive economic growth comes after a Q1 contraction as firms raced to stockpile imports ahead of tariff increases. While today’s print beat estimates, many expect tariff pressures to continue to weigh on consumer demand and business investment, which may reflect in the data through the latter half of the year.

Fed Governor Lisa Cook sues on attempted firing. Fed Governor Cook filed a lawsuit today in response to Trump’s statement removing her from the Fed, “effective immediately” on the basis of mortgage fraud allegations. President Trump, Fed Chair Powell, and the Fed Board are all listed as defendants in the lawsuit. The lawsuit explained that issues in the mortgage documents she submitted were the result of a “clerical error.” Cook’s lawyer, Abbe Lowell went on to say, “This case challenges President Trump’s unprecedented and illegal attempt to remove Governor Cook from her position which, if allowed to occur, would be the first of its kind in the Board’s history.” A court hearing is set for Friday, where Cook’s removal may be temporarily blocked while the case unfolds.