Economic Data Suggests Risk On Today

Includes: GES, LGF.A, SPLK
by: Seth Golden

The markets found themselves moving steadily higher throughout the day until the final trading hour, which saw the Dow Industrials give up nearly all of its gains and finishing only slightly to the upside. The S&P 500 index is on track for its longest monthly win streak since September 2009, as another report cast a positive light on the U.S. housing market. "We haven't had a 'sell in May' since this bull market began," said Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research, referring to the old Wall Street adage, 'Sell in May and go away.'

The economic data releases of the day had little effect on stocks in spite of a lower-than-expected revision to Q1 2013 GDP and higher-than-expected Weekly Jobless Claims. First-time claims for state unemployment benefits rose more than expected in the latest week, the Labor Department reported Thursday. The number of initial claims in the week ending May 25, rose 10,000 to 354,000. The consensus forecast of Wall Street economists was for claims to rise 1,000 to 345,000. The four-week average rose 6,750 to 347,250. This is the highest level since the week ended April 20. Claims in the previous week were revised to a decrease of 19,000 to 344,000 compared with the initial estimate that they dropped 23,000 to 340,000.

The U.S. economy grew at a 2.4% annual pace in the first quarter, little changed from the originally reported 2.5% increase, the Commerce Department said Thursday. Economists polled by Reuters had expected growth to remain unchanged at 2.5%. Consumer spending was somewhat higher, while business investment and government outlays were revised down, according to the government's second assessment of gross domestic product. Consumer spending - the engine of the U.S. economy - was revised up to 3.4% from 3.2%. That's the fastest rate in two years. Yet business investment in commercial real estate fell sharply and companies did not increase inventories as much as previously believed. Inventories rose $38.3 billion instead of the previous estimate of $50.3 billion. Also, government spending fell by a revised 4.9% instead of 4.1%. In the trade category, export growth was revised down to 0.8% from 2.9% and import growth was reduced to 1.9% from 5.4%. Adjusted corporate profits, meanwhile, fell by $43.8 billion in the first quarter after a $45.4 billion increase in the fourth quarter. Inflation as measured by the PCE index was muted, rising just 1.0% overall or by 1.3% excluding food and energy. The GDP report will be refined through one further update next month.

Last, but certainly not least, we received some housing market data that seemed favorable. Pointing to housing-market growth, pending sales of homes ticked up 0.3% in April, with gains in the Northeast and Midwest, but decreases in the South and the West, the National Association of Realtors reported Thursday. Despite April's slight gain, the pending-sales gauge increased 10.3% from April 2012, hitting the highest level in three years. The pending-home-sales index increased to 106 in April from 105.7 in March and 96.1 in April 2012. The housing market has seen large gains over the past year, though low inventories, and high unemployment and credit standards are constraining growth, analysts say. By region, April saw pending home sales rise 11.5% in the Northeast and 3.2% in the Midwest. Meanwhile, pending sales fell 7.6% in the West and 1.1% in the South. A sale is listed as pending when the contract has been signed but the transaction has not closed. Typically, sales are finalized within two months of signing.

The 30-year fixed-rate mortgage rose to 3.81% in the week ending May 30 - the highest rate in a year -- up from 3.59% in the prior week, Freddie Mac said Thursday in its weekly report.

On the surface, one might have expected a sell-off in risk assets due to worse-than-expected economic data and higher interest rates, but we witnessed just the opposite. The fact remains that the economic data continues to remain in the sweet spot for the Fed to continue its course of Quantitative Easing (QE). With this knowledge, investors should expect the markets and risk assets to be supported by the Fed's form of stimulus. The most important question is whether or not this economic climate, market climate and Fed stimulus is sustainable and only time can reveal the answer to that question. For investors, the market mantra has been to buy on the dips and it will remain the mantra until it ceases to prove viable.

After the closing bell we got the latest quarterly results from Guess Inc. (NYSE:GES) The company has been marred by a series of poor quarterly reports, but the stock has managed to find a footing in spite of two recent downgrades by Standpoint Research and Wedbush. Guess? Inc. shares jumped 9% in after hours trading today after the clothing company reported a first-quarter adjusted profit of 14 cents a share. That topped the $.08 average estimate of analysts. The company forecast full-year profit of $1.70 to $1.90 a share. Analysts were looking for $1.78 a share.

Splunk Inc. (NASDAQ:SPLK) also reported first-quarter earnings after the bell, unfortunately the market didn't treat the report as favorably as GES. The company reported a first-quarter loss of $16.1 million, or $.16 a share, on revenue of $57.2 million. During the year-ago quarter, the data-intelligence software company lost $20.5 million, or 71 cents a share, on sales of $37.1 million. Excluding one-time items, Splunk would have lost 6 cents a share, which met the estimates of analysts. However, Splunk's revenue exceeded the consensus forecast of $54.1 million. For its second quarter, Splunk forecast revenue in range of $61 million to $63 million, while analysts had previously estimated Splunk's revenue at $61.7 million. In after-hours trading, Splunk shares fell almost 3%.

Lastly, Lions Gate (LGF) reported earnings after the bell. The company reported it swung to a fourth-quarter profit of $163 million, or $1.10 a share, from a loss of $22.7 million, or 17 cents a share, a year earlier. On an adjusted basis, the company would have earned 61 cents a share. Revenue rose to $785.7 million from $645.2 million. Analysts had forecast Lions Gate to report quarterly earnings of $.47 a share on revenue of $753 million. The film studio operator credited its strong results on the global success of the Hunger Games and Twilight franchises. Shares of LGF are up by 4% on light volume after hours.

Overnight and well into tomorrow morning there is plenty of economic data to come out around the globe. The European Monetary Union will release its latest CPI data and Unemployment Rate. Canada will release its latest read on GDP. Japan will release its latest data on Vehicle Production, Housing Starts and Construction orders. In the U.S. we will get the latest read on Consumption and Personal Spending, Chicago Purchasing Managers' Index and Reuters/Michigan Consumer Sentiment Index.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.