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GDP — What you need to know in markets on Wednesday

Myles Udland
Markets Reporter

The summer doldrums were in effect on Tuesday.

After a rally to start the week after positive developments on U.S. and Mexico’s trade relationship pushed stocks to record highs, Tuesday’s advance was far more moderate as none of the major indexes rose more than 0.15%.

The tech-heavy Nasdaq lead the way on Tuesday, rising 12 points to a record high, while the S&P 500 added less than 1 full point but did notch a record high, and the Dow added 14 points, or 0.06%.

On Wednesday, investors will get one of the week’s biggest economic reports when the second estimate of second quarter GDP is released in the morning. Economists expected the U.S. economy grew at a pace of 4% in the second quarter of the year, a growth rate that would come in just below the 4.1% rate of growth reported late last month.

President Donald Trump speaks during a roundtable discussion on protecting American workers in Duluth, Minn., Wednesday, June 20, 2018. (AP Photo/Susan Walsh)

The July reading on pending home sales, which are forecasted to rise 0.3% from the prior month, is also due out in the morning.

And on the earnings side, notable companies reporting results should include Brown-Forman (BF-B), salesforce.com (CRM), PVH (PVH), American Eagle (AEO), Express (EXPR), and Dick’s Sporting Goods (DKS).

Confident consumers

One of the biggest economic themes since President Donald Trump’s election win has been the sharp jump in business and consumer confidence.

And that theme remains intact for another month.

On Tuesday, The Conference Board released its reading on consumer confidence in August, with the index coming in at 133.4, well above expectations and marking the highest reading for the measure since October 2000.

“Consumers’ assessment of current business and labor market conditions improved further [in August],” said Lynn Franco, director of economic indicators at The Conference Board.

“Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018. Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”

Tuesday’s report bolsters views that optimism among consumers and businesses will continue to extend and economic expansion that is in its tenth year.

Neil Dutta, an economist at Renaissance Macro, noted Tuesday that in The Conference Board’s report the percent of respondents who expected income to increase in the next six months hit its highest level since 2000.

At Capital Economics, Michael Pearce noted that while confidence spiked in August, expectations for the future rose more modestly and the gap between consumers’ current economic situation and their future is at levels not seen since 2001, when the economy entered a downturn.

“So while the strength of confidence is an encouraging sign that consumption growth will remain strong over the rest of this year,” Pearce wrote, “it reinforces the bearish signal from the yield curve, which we expect will invert next year, with an economic slowdown not far behind.”

And so on the one hand, consumers are unabashedly pleased with the economy right now and this bodes well for consumer spending into the holiday season. On the other hand, consumers tend to feel their best just before the economy turns. Of course, correlation does not imply causation.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland