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  • Sell In May? Not Today - By Jennifer Coombs

    After a boatload of earnings and two very rough trading sessions, the major equity indices are finally getting some reprieve and are trading back in positive territory for the year. Economic data around the world was mixed, but for the most part their stock markets reflected our own. Gold remains well below the $1,200-level and despite declining during today's session the price of oil remains just under $59 per barrel. The dollar still remains strong, but gains in some foreign currencies might change in the coming months.

    There's a whole slew of domestic economic data driving the market higher this morning, however the details are mixed. Firstly, spending in the construction sector once again missed consensus expectations. For the month of March, construction spending dropped 0.6% over the prior month while economists expected a 0.4% increase. Over last year, construction spending was up 2.0%, but down from February's annual increase of 2.7%. However, construction in both residential buildings and public buildings declined for the month. While we can still blame the weather for some of the decline, there is still an apparent weakness among builders. Private residential spending dropped 1.6% on the month as both single family and multi-family homes declined. In addition, residential construction excluding new homes, which includes the home remodeling sector, also declined after gaining ground in the last two months. However, nonresidential private construction actually showed some sign of hope as it advanced 1.0% for the month on gains in the office, manufacturing, and health care sectors. Public sector construction was down for a third straight month, although this is less watched by economists as it usually reflects the spending action of government and not consumers.

    Next, the Federal Reserve noted on Wednesday that consumer confidence is strong, and this is confirmed by the University of Michigan's consumer sentiment index, which showed an unchanged final reading of 95.9 for April, substantially higher than the 93.0 final reading for March. The index's two components, current conditions and expectations, both showed gains with readings of 107.0 and 88.8, respectively. The current conditions component points to month-over-month strength in consumer activity, while the expectations component points to confidence in income outlook. Inflation expectations are very weak in this report as well, reflecting the low level of gas prices which have actually been on the rise in recent weeks. The 1-year outlook for inflation is at 2.6%, down from 3.0% in March. Policy makers will keep a close eye on the consumer inflation expectations, although the report won't give the Fed any ammo for raising interest rates. Once again, it is interesting to see that despite the overall strength in sentiment, consumers have yet to pick up the pace in spending.

    Lastly, the Institute for Supply Management (ISM) noted an unwanted wrinkle in the April manufacturing purchasing managers index (PMI). For the month, ISM noted that weakness in the employment component held down the headline reading of 51.5, which is unchanged from March. While the employment component has been notably stronger in other reports, the ISM number shows the index down nearly 2 points into contractionary territory at 48.3. This is the first time this reading has shown a contraction since May 2013 and it's the lowest reading since all the way back to September 2009. All other indicators were positive for the month, notably new orders increased by 1.7 points to 53.5 and export orders were above the 50-level for the first time this year at 51.5 - a 4.0 point gain. Production is also strong at 56.0, while prices, as in other reports, remains in a contractionary phase at 40.5. The majority of the industries covered showed growth during the month, with the auto industry showing particular strength. However, the weak reading in employment is a big point of concern going into the April jobs report.

    May 01 2:46 PM | Link | Comment!
  • Mixed Data For The Fed's Consideration - By Jennifer Coombs

    Whew, what a morning! Today marked the busiest day for earnings this week, at the same time coinciding with a whole slew of economic data. Initial jobless claims, not skewed by special factors, plunged 34,000 in the week of April 25th to 262,000; which is the lowest level since all the way back to April 2000. The 4-week average is down by 1,250 to a 283,750-level which is just below what it was a month-ago and points to improvement for the April employment report (to be released on May 8th). Additionally, March consumer spending rebounded 0.4% (and was up 3.0% year-over-year) from a revised increase of 0.2% percent in February. However, the data suggests that people remain somewhat cautious in their spending habits despite having several months of cheaper gasoline and rising consumer confidence. The major equity indices remain at or near session lows with the NASDAQ dropping below the 5,000-level less than a week after testing new all-time highs.

    Other than the aforementioned data, there were a few later reports that helped contribute to the dyslexic nature of the market today. Firstly, compensation costs are moving higher as the employment cost index (ECI) rose by 0.7% in Q1-2015 versus a revised 0.5% increase in Q4-2014. On a year-over-year basis the index is up 2.6% and significantly exceed the Q4-2014 rated of +2.2%, but more importantly it significantly exceeds the Fed's general inflation limit of 2.0%. This gain in costs is split evenly between wages and salaries which are up 0.7% on the quarter, and benefits are up 0.6%. On a year-over-year basis, wages and salaries are up 2.6% while benefits are up 2.7%. The Fed is now set to raise interest rates at the drop of a hat, and today's ECI is very closely followed by policymakers as a factor in their rate hike decision. Yesterday's Fed minutes noted that compensation inflation remains low, but these numbers clearly don't jive with that assessment.

    Lastly, the always-volatile Chicago purchasing managers index (PMI) jumped back into expansionary mode in April, with a reading of 52.3 versus a depressed 46.3 in March. The strength for the month is centered on new orders, which surged a whopping 12.8 points to a reading of 55.1 for the highest reading in the component since January 2015. This is the largest month-to-month increase for this reading in over 30 years. Additionally, the backlog orders, employment and production components were also higher for the month. The gauge for inflation is currently at a multi-year low, and this is the case in many of the April Fed reports. Since this PMI measures both manufacturing and non-manufacturing data in the Chicago area, the readings are often very jumpy. However, this will fit in with the Federal Reserve's expectations that the economic slowdown in the first quarter was due to a lot of one-time factors and that the second quarter should see a recovery in underlying growth rates.

    Apr 30 1:46 PM | Link | Comment!
  • GDP & Fed Causing Market Woes By Jennifer Coombs

    The big countdown to the Federal Reserve Open Market Committee (FOMC) minutes is upon us and the market is having a tantrum. Stocks have consistently tumbled during today's session with the Dow Jones Industrial Average posting triple-digit losses and the NASDAQ off by roughly 1.0%. The latest build in crude oil inventories decelerated substantially from the previous weeks, although inventories remain at 80-year highs. Nevertheless, the slowdown in inventories caused the price of oil to pop nearly 4.0%, with the price per gallon just below the $60-level. The US dollar is also taking a massive hit today after the first quarter reading for the US gross domestic product (NYSE:GDP) came in well below consensus at a pathetic +0.2%. This compares to a reading of +2.2% in Q4-2014 and the +1.0% consensus estimate for Q1-2015. Weather issues, as well as weak exports thanks to the strong US dollar caused economic growth to collapse, and in turn, today's equity indices.

    Aside from this morning's GDP disappointment, there was one other notable economic release and it should've given the market a lift. In another positive check point for housing data, pending home sales increased for the third month in a row, rising by 1.1% in March and outpacing economist estimates at 1.0%. Ultimately, this is indicative of what would be a very welcome third consecutive gain for final sales of existing homes, which surged 6.1% in the latest report. On a regional basis, strength in pending sales was centered on the South - the largest housing region. Pending sales in the South jumped a whopping 4.0% from the prior month for a year-over-year gain of 12.4%. Sales in the West were also strong, increasing by 1.7% for the month for a year-over-year gain of 15.6%. The overall change in pending home sales versus the same time last year is a healthy 11.1%. A pick up in the sales of existing homes is hopefully giving the signal that improvement is occurring in the new home market which currently remains weak. Last month's weak report for housing starts and permits is still troubling to economists, and despite this positive report, remains the elephant in the room.

    Apr 29 1:36 PM | Link | Comment!
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