Thursday, May 30, 2019

Markets edge higher after revised GDP data

Dow rose 67, advancers over decliners about 3-1 & NAZ gained 40.  The MLP index was even in the 247s & the REIT index fell 2+ to the 381s.  Junk bond funds inched higher & Treasuries were sold after being purchased yesterday.  Oil drifted sideways in the 58s & gold was steady at 1286.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil59.01

GC=FGold1   ,284.90
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The US economy grew 3.1% to start the year, slightly better than expected & providing some relief at a time when recession fears are accelerating, the Commerce Dept reported.  Q1 GDP beat the 3% estimate but was lower than the initial 3.2% projection from the Bureau of Economic Analysis.  The decrease came due to downward revisions to nonresidential fixed & private inventory investment, 2 key drivers to GDP.  The new numbers, which represent the 2nd reading, also reflect upward revisions to exports & personal consumption expenditures.  Corp profits also weakened, falling 2.8% across all companies & 0.5% in the S&P 500.  Inflation indicators also were weaker than expected, with core personal consumption expenditures up just 1.03%.  Exports rose 4.8% amid the increasingly bitter trade war between the US & China, while imports, which are a subtraction from GDP, declined 2.5%.  The level of net exports contributed nearly 1 percentage point to the GDP gain.  In the bigger picture, growth easily surpassed what most economists had been expecting at the start of the year.  At one point, the Atlanta Federal Reserve was estimating GDP to rise just 0.2%.  Strong contributions from real gross domestic income helped drive the better numbers, as did a rise in exports, state & local gov spending & nonresidential fixed investment.  Corp profits fell during the qtr, with nonfinancial corporations seeing a decline of $62.1B compared with an increase of $13.6B in Q4.  Financial companies saw an increase of $7.2B compared with a decrease of $25.2B for the previous period.  Personal consumption expenditures rose 1.3%, compared with a rise of 2.5% in the previous qtr but well above the 0.5% in Q1-2018.  Q2 growth is expected to decline significantly.  CNBC's Rapid Update economist survey sees GDP up 1.8%, while the Atlanta Fed's projection is for just 1.3%.

First-quarter economic growth up 3.1%, slightly better than Wall Street expected

China has halted purchases of American soybeans in another chess move in the escalated trade war with the US.  Chinese buyers have stopped ordering & don't expect to resume the purchases due to the disagreement on trade between the world's 2 largest economies, but China currently has no plans to cancel previous orders.  Soybean farmers have taken a hard hit from the trade tensions as the value of soybean exports to China fell 74% to $3.1B in 2018 from about $12.2B the previous year, according to the Dept of Agriculture.  The Trump administration last week announced a $16B trade program for American farmers impacted by retaliatory tariffs.  Soybean futerses tanked to the lowest since 2009 on May 13 as the trade war heated up.  The latest move from China followed a slew of tit-for-tat tactics between the two countries. China has threatened to cut off rare earth mineral supply to the US, a crucial material in the tech supply chain, after Pres Trump blacklisted Chinese telecom giant Huawei.  The Defense Dept is now looking to reduce the country’s reliance on Chinese rare earth materials.  Both sides slapped tariffs on each other's goods earlier this month.  The tariffs on $60B in US goods in retaliation for the higher duties on $200B worth of Chinese products will kick in on Sat.  The stock market has been in turmoil amid the intensifying trade tensions as major US indices are all on pace to post their first negative month of 2019.  The S&P 500 is down 5.5% in May, while the Dow has lost about 1300.

China makes next move in trade war, reportedly halting US soy purchases

Home shoppers signed 1.5% fewer contracts to buy existing homes in Apr compared with Mar, according to the National Association of Realtors' Pending Home Sales Index.  Sales were 2% lower compared with Apr 2018, the 16th straight month of annual declines.  Pending sales are an indicator of future closings & are therefore the most timely measure of activity in home sales.  The expectation had been for a small monthly gain after a large gain in March.  “Though the latest monthly figure shows a mild decline in contract signings, mortgage applications and consumer confidence have been steadily rising,” said Lawrence Yun, chief economist for the NAR.  “It’s inevitable for sales to turn higher in a few months.”  Buyers this spring have had the benefit of lower mortgage rates.  The average rate on the 30-year fixed soared above 5% last Nov, but sank closer to 4% in Mar & then held steady right around 4.3% for most of Apr, when these contracts were signed.  Buyers are also seeing home prices cool, which carries both negative & positive implications for the market.  Prices are still higher than they were a year ago, but the gains have been shrinking with each month.  While that helps with affordability, it also fuels fears that, in some markets, a home bought today will actually fall in value over the coming year.  This is especially true in overheated markets like Seattle, Denver, Los Angeles & San Francisco.  The supply of homes for sale in these markets is also rising.  “Home price appreciation has been the strongest on the lower-end as inventory conditions have been consistently tight on homes priced under $250,000. Price conditions are soft on the upper-end, especially in high tax states like Connecticut, New York and Illinois,” said Yun.  New tax laws have limited the deduction homeowners can take for property taxes.  That has hit housing markets in higher tax states disproportionately.  As a comparison, there is just a 3.3-month supply of homes for sale priced under $250K nationally, but an 8.9-month supply of homes priced $1M & above.  Regionally, the pending home sales index in the Northeast declined 1.8% monthly & was 2.1% below a year ago.  In the Midwest, the index rose 1.3% monthly but was 2.4% lower annually.  In the South it fell 2.5% monthly & 1.8% annually.  In the West it dropped 1.8% monthly & was 1.5% below a year ago.

April pending home sales fall unexpectedly

This is a pause time for stocks.  The GDP news caused little excitement & the the trade dispute is lumbering along.  Trump is expected to talk with Xi in a few weeks & investors will have to wait for that meeting.  While stocks are having a difficult month, the averages are hanging in fairly well, all considered.

Dow Jones Industrials

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