U.S. stocks advanced for a fifth day in six on Thursday, pushing the S&P 500 to an all-time high, as Wall Street tracked Treasury yields while betting the U.S. economy would rebound from its first contraction in three years.
The Commerce Department found gross domestic product declined at a 1 percent annualized rate in the first quarter. Analysts had estimated a 0.4 percent contraction.
"The weakness in the GDP report had been well-telegraphed, but negative 1 percent is eye opening," said Joe Peta, a managing director at Novus.
"As much as it gets written off as due to the weather, or today, with the further weakness attributed to a lack of an inventory buildup. Taken together, it's as if the bond market is telling us something, and calls into question just how healthy this economy is," Peta added.
"We're piercing yields that started to climb when (former Federal Reserve Chairman Ben) Bernanke first started using the term 'taper.' It was below 2 percent, then yields went on a rally for 3-4 weeks, that what we're retracing now. It it goes below 2.25 percent, it's worth noting," Peta said.
On Thursday, benchmark yields turned higher, with the 10-year Treasury note up 2 basis points at 2.461 percent, after falling as low as 2.3971, its lowest since June.
"The key thing for investors now is don't get fooled by the bond market, as it is distorted by central banks. If you torture something long enough it will lie to you, and that's what central banks have been doing to the bond market," said David Kelly, chief market strategist at J.P. Morgan Funds.
"The second estimate of GDP is backward looking. We knew that weather dramatically impacted growth in the first quarter and we fully expect a bounce back in the second quarter," noted Dan Greenhaus, chief strategist at BTIG,
"The market is not supposed to be a mechanism for discounting the past; the bond market is pretty much broken as an indicator as to where the economy is going," said Kelly, who adds that the bond market has been contorted by mismatched supply and demand issues.
"Supply has fallen dramatically in the last few years by the improvement in the budget situation, and demand is coming from people who don't care about price," said Kelly, listing the U.S. Federal Reserve, foreign central and commercial banks and mutual and pension funds trying to match longer-term liabilities.
Hillshire Brands rallied after Tyson Foods offered to acquire the meat producer for $50 a share. Shares of Costco Wholesale edged lower after the warehouse club operator reported third-quarter results beneath estimates.
"Costco earnings were okay, or a bit below. Like the economy, it's chugging along and not losing money, but the consumer is not showing signs of blow-out growth," said Peta.