Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed in negative territory on Thursday, shrugging off several positive economic updates.
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In a positive signal for gross domestic product (GDP), the U.S. Bureau of Economic Analysis announced that October’s goods and services trade deficit narrowed by $18.8 billion, or 39%, to $29.4 billion compared to September. That marks the lowest monthly deficit since 2009, driven by imports falling by 3.2% and exports rising by 2.6%.
Afterward, the Atlanta Fed doubled its fourth quarter GDP estimate to 5.4% from 2.7%, citing the improving trade deficit and strong consumer spending. A narrower trade deficit supports GDP because the gap between imports and exports shrinks, meaning less money flows overseas and more remains in the domestic economy to support growth. In addition, credit rating agency Fitch raised its 2025 GDP estimate to 2.1% from 1.8% and its 2026 estimate to 2% from 1.9%.
Fitch also expects the Fed to cut rates by 50 bps during the first half of 2026, with inflation rising to 3.2% by year-end and an average unemployment rate of 4.6%.
Both Federal Reserve Governor Stephen Miran and Treasury Secretary Scott Bessent support rate cuts. In an interview with Bloomberg Television’s Surveillance, Miran argued that the Fed should cut rates by 150 bps this year in order to support a softening labor market while inflation is “within noise” of the central bank’s target of 2%. Bessent added that lower rates are the “only ingredient missing for even stronger economic growth,” urging the Fed to cut rates without delay.
The Fed will meet for its first Federal Open Market Committee (FOMC) meeting of the year on January 28. However, investors expect the central bank to hold rates steady, with CME’s FedWatch tool pricing in 88.4% odds to that scenario.
Meanwhile, initial jobless claims for the week ended January 3 increased by 8,000 to 208,000, below the estimate of 210,000 but breaking a three-week streak of consecutive declines. Furthermore, continuing jobless claims, which trail initial claims by one week, came in at 1.914 million, above the estimate of 1.9 million.
“There’s seasonality involved here and if you pan out, there’s still a case to be made for the labor market’s stabilization,” said iCapital Chief Investment Strategist Sonali Basak in an X post.
The S&P 500 (SPX) closed with a less than 0.01% gain, while the Nasdaq 100 (NDX) fell by 0.57%.
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