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S&P 500 ends shy of high as stocks fizzle on GDP

Adam Shell
USA TODAY

U.S. economic growth has stalled, and so did stocks on Friday.

Stocks ended near flat after the government reported that U.S. economic growth in the second quarter came in at an anemic 1.2% and well below expectations.

A trader works on the floor of the New York Stock Exchange on July 27, 2016.  (Photo by Kena Betancur/Getty Images)

The Dow Jones industrial average — which has finished lower every day this week — closed off 24.11, or 0.13%, at 18,432.24. But other indexes ended higher, and the broader Standard & Poor's 500 stock index closed up 3.53 points, or 0.2% at 2,173,59 after coming close to a record high.

The Nasdaq Composite ended up 7.15 points, or 0.1%, at 5,162.13. as heavyweight tech stocks Alphabet and Amazon rallied after earnings.

Amazon, Facebook top Exxon in market value; tech takes Top Five

​Last week both the Dow and S&P 500 hit record highs.

The weak GDP number marked the third straight quarter the U.S. economy has produced growth numbers that amount to an economy running at stall speed. In the April thru June quarter, the economy performed well below the 2.6% growth that economists had forecast, with gains in the consumer segment of the economy being offset by weakness in business investment. Growth for the first quarter of 2016 was also revised downward to 0.8% from 1.1%, as was growth in last year's fourth, which was downgraded to 0.9% from 1.4%

The continued weakness in economic growth will likely boost talk of recession risks in the U.S., as well as impact the Federal Reserve's thinking on potential interest rate hikes this year. The economy's persistent weakness could also become an increasingly important storyline in the run-up to the presidential election in November.

Another GDP stunner: Growth only 1.2% over the last 3 months

On Wednesday, the Fed released a policy statement that said "near-term risks to the economic outlook have diminished," a new sentence that Wall Street interpreted as the U.S. central bank was leaving the door open a crack for a September rate hike.

But after another quarter of weak economic growth, Wall Street pros now say a rate increase at the Fed's next meeting in September is unlikely.

"We did not believe there was a significant chance that the Fed would raise rates in September, but today’s release makes such a hike very difficult to justify," Don Rissmiller of investment firm Strategas Research Partners told clients in a note after the GDP report was released.

The economic weakness could put further pressure on Democratic presidential nominee Hillary Clinton, as she is representing the incumbent party in the election against Republican Donald Trump.

"GDP was just 1.2% today and clearly a disappointment. It won't take long for the results to make it into the presidential campaign that's for sure," noted Chris Rupkey, chief financial economist at MUFG Union Bank.

Wall Street was also reacting to moves by the the Bank of Japan to stimulate growth. The BoJ's moves were less aggressive than investors had anticipated, as the Japanese central bank did not push a key interest rate further into negative territory, nor did it expand its purchases of government bonds. Instead, the BoJ boosted its purchases of equity-linked exchange traded funds by nearly double.

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