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Things you need to know.
- GDP surges, Economy on Solid Footing
- Earning continue to beat
- Trump Talks The Saudi’s into increasing production
GDP – Gross Domestic Product – is the measurement of a nations overall economic activity…..it is the monetary value of all finished goods and services produced within a specific period of time…and on Friday – we learned that 1st Qtr GDP was 3.2% – well ahead of the 2.3% that was expected…..which means that the US economy grew at the fastest 1st Qtr rate in 4 yrs…..no matter that we had a 33 day gov’t shutdown or weaker domestic demand leaving room for further growth…..things like rising exports, weaker imports and higher inventory investment all contributing to the better number. And this report runs counter to the ‘gloomy start’ that permeated the conversation after the mkt meltdown in the 4th qtr of 2018. Now yes – a couple of things happened on the way to the forum – the FED shelved their plans to raise interest rates 3 or 4 times this year…… US/China trade talks continued to move ahead and then China reported that their 1st Qtr GDP also beat expectations and stocks suddenly found their footing and began to climb towards the October all-time highs – and by mid-week – the S&P and Nasdaq kissed and then pierced those old levels. Trump welcoming the ‘incredible number’ saying “We have great growth, and also very low inflation” while his top economist – Kevin Hassett told us that
“the report confirms our view that the momentum from last year was not a sugar high, but a serious response to long-run policies that have made the US a more attractive place for business.”
Now as expected – there were some economists and strategists that had to throw water on the report – reminding us that this explosive growth report could just be temporary and inventory investment which surged in the 1st qtr could be negatively impacted in the 2nd qtr GDP if companies draw down these stockpiles vs continuing to build them out.
And this report created excitement and then concern – causing the mkt to rally then sell off – but in the end all 4 indexes surged into the closing bell. The Dow added 81 pts or 0.31%, the S&P tacked on 13 pts or 0.47%, the Nasdaq surged by 27 pts or 0.34% while the Russell – always outperforming rose by 16 pts or 1.03%! Now while the S&P and Nasdaq are teasing new highs – the Dow and the Russell remain below the October highs – so there is still more work to do before all 4 indexes put the October highs behind them.
The indexes are now all up high double digits with the Nasdaq surging ahead by 23%, the Russell by 18%, the Nasdaq up by 17% while the Dow remains the laggard – up by 13% – much of that underperformance can be attributed to BA, UNH & GS – all names that have been struggling a bit this year….and since the Dow is a price weighted index – the expensive stocks have a bigger impact on the index’s performance.
Fresh signs of a surging US economy – causing companies to report better than expected earnings and offer stronger US guidance, muted inflation and an accommodating FED all factors in helping the mkt gain strength this year and whether or not the gains last will depend on what the future holds….I mean look – the mkt has had a tremendous year in just 4 months….and for it to continue to move ahead – it needs the data to show we are not overheating and that inflation will remain under control – because if we suddenly see inflation rear its ugly head then we can also expect the FED to change course and turn off the spigot and that would take the wind out of the sail…..Today we get gov’t’ report on inflation data for both February and March (the gov’t shutdown prevented the February data from being reported in March) and the consensus is that we will continue to see inflation running at sub 2% -which will keep the FED on hold…..
But some analysts are cautious – citing rising oil prices…..oil is up 40% ytd – because some of the major producers have cut output – thus decreasing supply, rising wages and rising consumer staples as companies raise prices to offset rising costs – while others remind us that despite all of this – investors expectations remain muted which is exactly the issue…..Because expectations remain muted – any report that now contradicts that expectation could cause an overreaction (like the one we saw in October/December 2018) ……and now we are hearing that the mkt is just too complacent about inflation – and that is clear in the VIX (the FEAR Index). We see the VIX back at levels seen in the July/September 2018 period – right before the spike that was the October/December period. And what is the next FED move? No one is quite sure…..but the bookies tell us that there is a 41% chance of a rate cut by year end – but is that overblown? – Stocks have rallied sharply – and in fact are at all-time highs, stretching valuations…so I for one find it hard to believe that the FED would find it necessary to cut rates in this environment…but hey….What do I know?
Overnight – Asian mkts remained mixed – Japan is closed for a 10 day holiday to celebrate the enthronement of Crown Prince Naruhito. China fell by 0.77% as investors there are a bit concerned that valuations are too expensive and when valuations become expensive – investors/trader take money off the table. Others are concerned that the Gov’t is about to end any policy accommodation, causing the algo’s to panic.
In Europe – mkts there are all in slightly negative territory……as another week of earnings takes hold…this will be the last week of a flurry of earnings as most companies will have reported. Snap elections in Spain reveal that the ruling socialist party remains in control, but the FAR Right Wing party did gain 24 seats making it the first FAR right wing party to enter Parliament since the 1970’s. FTSE -0.24%, CAC 40 – 0.37%, DAX -00.30%, EUROSTOXX -0.52%, SPAIN -0.86% AND ITALY -0.28%.
US Futs are flat…..corp earning will remain the focus with names like AAPL, GE, PFE, BP, LLY, MRK, MA, GLW, COP, GM, and MCD all reporting this week. Eco data today includes: Personal Income and Spending, Dallas Fed – later in the week – look for reports on pending home sales, mortgage apps, ISM manf, ISM New Orders, and on Wednesday – look for the FOMC Rate Decision…..no surprise there. Later in the week – look for Durable Goods, Factory Orders, Retail Inventories and on Friday the Non-Farm Payroll number.
The S&P is teasing new highs – analysis must be more dependent on trendlines vs. prior resistance levels. The channel drawn from January to now – reveals that we should find support right here with the upside well in to the next century mark (S&P 3000). – but so much will depend on US/China trade talk and the continued improving macro data. Unless we get a real surprise – I suspect that the trading range will be 2900/2950 on the S&P.
Oil which fell by 3% on Friday after Donny ‘called up OPEC’ demanded that OPEC (Saudi’s) raise production to counter act the spike in oil and gasoline prices after he cancelled all waivers for Iranian oil. In a Tweet – he said “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement.” And this caused the trader types to abandon the trade – sending oil down $2. Remember – OPEC meets officially in June, but the Saudi’s could change their production output at any time and the Russians have already said that they can meet Chinese demands after China stops buying Iranian oil. Look for support at $60.57 – but also be aware that oil is about to experience its own Golden Cross – most likely today or tomorrow and that just bodes well for the price of oil.
Take good care.
Kp
Pulled Pork
Shout out to my friend Frankie D for giving me this great recipe. You need a slow cooker for this.
Put into slow cooker: 1 cup of ketchup, ½ cup of beer, ½ cup of light brown sugar, ½ cup of chopped onion, ¼ cup of red wine vinegar, ¼ cup of Worcestershire sauce, 1 tbsp Montréal steak seasoning, 1 tsp of garlic powder, 1 tsp Cajun seasoning.
Mix ingredients together with a spoon and then add pork butt/shoulder 3-5 pounds is good for sandwiches for 4-6 people with a little left over.
Cook for 8 hours. Remove and shred with a fork. Ladle sauce onto pork. If you want a thicker sauce, mix in some flour.
Enjoy!
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