Friday, July 29, 2016

Markets drift lower on weak GDP data

Dow was down 35, advancers a little ahead of decliners & NAZ added 1.  The MLP index fell 2+ to the 312s & the REIT index rose 4 to the 376s.  Junk bond funds were flattish & Treasuries went up.  Oil has fallen to just above 40 & gold gained again.

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Crude Oil Sep 16

Gold Futures,Dec-2016

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The US economy expanded less than forecast in Q2 after a weaker start to the year than previously estimated as companies slimmed down inventories & remained wary of investing amid shaky global demand.  GDP rose at a 1.2% annualized rate after a 0.8% advance the prior qtr, according to the Commerce Dept.  The forecast called for a 2.5% increase.  The report raises the risk to the outlook at a time Federal Reserve policy makers are looking for sustained improvement.  While consumers were resilient, businesses were cautious, cutting back on investment & aggressively reducing stockpiles amid weak global markets, heightened uncertainty and the lingering drag from a stronger dollar.
Private fixed investment, which includes residential & business spending, dropped at a 3.2%, the most in 7 years.  The Commerce Dept also issued its annual revisions.  The Q1 reading was revised from a previously reported 1.1% gain.  The new breakdown shows a more pronounced slowdown in the economy heading into 2016.  Year-over-year growth rate cooled from 3.3% in last year's Q1 to 1.9% in Q4-2015, rather than the previous downshift from 2.9% to 2%.  The easing in growth continued into H1 of this year.  The year-over-year pace for Q1-2016 was revised down to 1.6% from 2.1%.  That revised trajectory has implications for Fed officials, as they’re faced with an expansion that has been steadily losing steam.  The report also showed that in Q2, GDP expanded at a 1.2% rate from the same period a year earlier.
The growth estimate is the first of 3 for the qtr.

U.S. Economy Grew Less-Than-Forecast 1.2% in Second Quarter

Consumer confidence slid in Jul from the prior month on dimmer views of the US economy's prospects & lingering concerns among higher-income earners about global market conditions.  The University of Mich said that its final index of sentiment declined to 90 this month from 93.5 in Jun.  The projection was for a reading of 90.2 after the preliminary Jul figure of 89.5.  A record share of households with incomes in the top 1/3 mentioned the UK decision to leave the EU was weighing on outlooks. The gap between current views of the economy and expectations last month widened in Jul.  “While concerns about Brexit are likely to quickly recede, weaker prospects for the economy are likely to remain,” Richard Curtin, the survey’s director, said.  The sentiment survey's current conditions index, which measures Americans’ assessment of their personal finances, fell in Jul to 109 from 110.8 last month & the measure of expectations six months from now decreased to 77.8 from 82.4.  Americans anticipated an inflation rate of 2.7% in the next year, up from 2.6% in Jun.  They expect prices to rise 2.6% over the next 3-10 years, the same as in the previous month.  Despite the setback in sentiment this month, consumers have shown they’re more willing to spend than they were at the start of the year.

Consumer Sentiment Slips in July

The Institute for Supply Management’s gauge of factory activity in the Midwest region fell to 55.8 in Jul from 56.8 the month prior.  The forecast expected a larger decline to a reading of 54.0.  Readings above 50 point to expansion, while those below indicate contraction.

Midwest Manufacturing Continued to Expand in July

The economic news was not good while earnings are coming in varied.  The lack of strength in the economy makes the bulls feel better concerning extending low interest rates.  But this is not the behavior expected when popular stock averages are essentially at record highs.  This disconnect between economic performance & stocks prices is not new, but it still should be a cause for worry. 

Dow Jones Industrials


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