Stock Market Isn't Spooked by Trade as GDP Remains Strong

Michael Haddad Sept. 27, 2018 3:48 p.m. ET

Nothing can scare the market in a strong economy, not even the potential breakup of Trump and Xi’s friendship.

After falling four days in a row, the S&P 500 gained 0.5% on Thursday, recovering all the ground it lost Wednesday after the Fed raised interest rates. The Dow Jones Industrial Average was up 0.5%, while the Nasdaq Composite—lifted by tech stocks—advanced 0.9%.

The surge comes despite some not-so-positive news from President Donald Trump, including his statements that he may no longer be friends with China’s President Xi Jinping, and that he rejected Canadian Prime Minister Justin Trudeau’s request for a meeting on trade. Also not helping are reports that Democrats in the Congress are objecting to the Trump administration’s plan to proceed with a new Nafta deal without Canada.

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Still, investors have reasons to be confident. U.S. gross domestic product expanded at an annual rate of 4.2% in the second quarter, much stronger than the first quarter’s 2.2% growth. The Commerce Department reported no revision to that estimate on Thursday.

Earnings-per-share growth for the current quarter, estimated at 21.6% according to Thomson Reuters data, is also looking strong. Tony Dwyer from Canaccord Genuity expects the final reading to be even higher. He noted that the consensus expectation going into the second-quarter reporting season was for 20.7% growth, but the final increase was 25.0%.

“Throughout this cycle, EPS estimates have been revised up a median 3.5% from the beginning of reporting season to the last report,” he wrote in a note Thursday, “This suggests Q3/18 growth should be over 25%, when

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