Friday, April 28, 2017

Markets drift lower after weak GDP report

Dow lost 29, decliners over advancers better than 3-2 & NAZ gave back 3.  The MLP index added 1+ to the 318s & the REIT index dropped 3+ to the 345s.  Junk bond funds were little changed & Treasury prices hardly budged.  Oil climbed higher from recent lows (more below) & gold inched higher to 1267.

AMJ (Alerian MLP Index tracking fund)

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The US economy expanded at the slowest pace in 3 years as weak auto sales & lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing & oil drilling.  GDP, the value of all goods & services produced, rose at a 0.7% annualized rate after advancing at a 2.1% rate in the prior qtr, Commerce Dept data showed.  The forecast called for a 1%  gain.  Consumer spending, the biggest part of the economy, rose 0.3%, the worst performance since 2009.  The GDP slowdown owes partly to transitory forces such as warm weather & volatility in inventories, which supports forecasts for a rebound as high confidence among companies & consumers & a solid job market underpin growth.  Even so, the weakness at car dealers could weigh on expansion & further gains in business investment could depend on the extent of policy support such as tax cuts.  The data are unlikely to dissuade Fed from raising interest rates in the coming months.  Economists were largely expecting a weak growth figure, calling it a blip & not a sign of stagnation.  Though the Q! figure isn't a verdict onTrump's policies, economists are generally skeptical that growth will reach his goal of 3-4%  on a sustained basis.  Their estimates indicate just 2.2 -2.3% annual growth thru 2019, a tad above the average pace during the almost 8-year expansion.  During Q1, a chief driver of growth was private, fixed nonresidential investment, which contributed 1.12 percentage point to expansion, led by a record increase in mining exploration, shafts & wells, a category that includes oil structures.  Residential investment added 0.5 point to growth.  The change in inventories, one of the most volatile parts of the GDP calculation, subtracted 0.93 percentage point from growth, following a 1.01% gain.  Trade, also volatile, contributed 0.07 point after a 1.82 point drag in the previous period.  The 0.3% growth in household consumption, which accounts for about 70% of the economy, followed a 3.5% jump from Oct to Dec.  The forecast called for 0.9% & purchases added 0.23 percentage point to Q1 growth.  While some of the slowdown may be temporary, inflation is eating into consumers’ wallets.  Real disposable personal income rose at a 1% pace, the weakest since Q4-2013.  Even though hiring has been humming along & the jobless rate of 4.5% is the lowest in almost a decade, a sustained pickup in wage growth would help boost consumers' ability to spend.

U.S. Economy Grew 0.7% in First Quarter, Slowest in Three Years

Household sentiment was little changed in Apr from the previous month, holding at an elevated level on optimism about personal finances, Univ of Michsurvey data showed.  Final Apr index of sentiment stood at 97 (forecast was 98), after 96.9 in Mar & down from a preliminary reading of 98.  Current conditions gauge, which measures Americans' perceptions of their personal finances, eased to 112.7 from 113.2 the prior month.  The preliminary Apr reading was 115.2.  Expectations measure crept up to a 3-month high of 87 from a Mar reading of 86.5 & an Apr preliminary index reading of 86.9.  An improved financial situation was reported by 50% of all respondents in both the Mar & Apr surveys, the most in more than 15 years.  Americans continue to feel optimistic about a solid job market, with expectations of falling unemployment the most favorable since 1984, & the prospects of growth-boosting legislation.  The expectations measure remained divided along party lines, as 66% of Reps expected the economy to improve, compared with only 18% among Dems.  “Consumer sentiment continued to travel on the positive plateau established following Trump’s election,” Richard Curtin, director of the consumer survey, said.  “There remains widespread agreement among consumers on their very positive assessments of the current state of the economy as well as widespread disagreement on future economic prospects based on partisanship.”  Higher home values were cited by 62% of homeowners, the largest share since 2006.

Consumer Sentiment in U.S. Was Little Changed in April

Oil prices rose after a slide to a one-month low the previous day prompted investors to buy at cheaper levels ahead of an OPEC meeting next month at which producers could prolong output curbs.  Most analysts polled expect the deal between OPEC & non-OPEC producers struck in Dec 2016 to be extended to the end of this year.  Compliance with the output deal is still a major price driver & comments from Russia that it would meet its end-Apr target of cutting output by 300K barrels per day (bpd) also supported prices today.  Non-OPEC member Russia said it would define its position on whether to support an extension of the output deal by May 24, a day before the official OPEC meeting in Vienna.  US light crude fetched $49.53 a barrel, up 56¢.  Despite Friday's gains were set for their 2nd straight weekly & monthly losses after yesterday's price drop, which was driven by news of oilfields in Libya resuming production.  An uptick in prices since the output deal has already increased profits at some major oil companies whose investments in new projects will also affect supply & demand balances.

Oil Rises from One-Month Low on Hopes of Output Deal Extension

This is turning out to be another lackluster day for stocks.  The GDP & consumer confidence data was pretty much expected.  However the goings on in DC continue to get most of the attention.  An effort to revive the new healthcare plans is on hold & the future of the tax plan proposal is unclear.  Meanwhile, Congress will probably allow the Treasury to borrow more money for another week, whatever, to keep the federal gov running for awhile.  As has been the case for several years, bitter partisan fighting means legislative action is stuck in the mud, something the stock market does not like to see.

Dow Jones Industrials


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