The U.S. economy grew at an annualized rate of 3.8% in the second quarter, up from the previous estimate of 3.3%, the Bureau of Economic Analysis (BEA) reported. The revised pace was the fastest since the third quarter of 2023, Reuters calculated. Analysts surveyed by the agency had expected no change. According to the Ministry of Trade, the main drivers for GDP were a reduction in the trade deficit amid a fall in imports and growth in consumer spending and business investment.

At the same time, the U.S. Department of Labor reported that the number of initial applications for unemployment benefits for the week to September 20, taking into account seasonal adjustment decreased to 218 thousand. This result was 17 thousand below the forecast of Dow Jones and 14 thousand less than a week earlier, when the number of applications also went down after a short-term surge, CNBC notes.

Against this background, all four major U.S. benchmarks declined in trading on September 25. S&P 500 and "technological" Nasdaq Composite fell by about 0.5% each, after which they recovered part of the losses. The Dow Jones blue-chip index went down by 0.2%. The Russell 2000 index of small-capitalization companies fell the most - by almost 1%. The VIX, known as the Wall Street Fear Index, jumped 10% at one point, almost reaching the 18-point mark. The level of 20 is considered psychologically important.

Investors fear that strong labor market data and revised GDP growth in the second quarter have increased the likelihood that the U.S. Federal Reserve will take a pause in rate cuts, while the expectation of further easing was one of the key drivers of their optimism, CNBC explains. Expectations of Friday's important inflation report and risks of a shutdown added additional caution to the market, the channel adds. If Congress fails to agree on a budget or temporary funding by October 1, the work of federal agencies may be suspended. In this case, mass layoffs of federal employees are possible, as agencies are instructed to prepare plans for "staff reductions," CNBC emphasizes.

Analyst Paul Stanley of Granite Bay Wealth Management, in turn, believes that stronger-than-expected economic growth is unlikely to change the expected trajectory of Fed rate cuts "as this is lagging data." Traders' estimates of the likelihood of easing declined only slightly after the GDP data was released - they forecast a 40 basis point rate cut by the end of the year, Bloomberg reports .

"Investors will want to see inflation at or below the forecast range - that would keep the Fed on course for two more rate cuts in 2025, " analyst Bret Kenwell of eToro said in the agency's statement. - As much as investors want lower rates, a strong economy is more important."

"The economy is strong and growing," said Chris Zaccarelli of Northlight Asset Management. - But much of that good news is already priced into prices. Our biggest concern is the [inflated] valuation of stocks."

This article was AI-translated and verified by a human editor

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