- U.S. equities flat following GDP report, geopolitics temper overseas markets. (10:40 am) U.S. stocks are largely unchanged in early trading as traders digest Q1 gross domestic product (GDP) data that came in below consensus expectations; this following Thursday’s session in which the Nasdaq (+0.4%) hit another record high on technology company earnings, while the Dow (+0.3%) and S&P 500 (+0.1%) notched slight gains. Tech (+0.6%) and consumer discretionary (+0.5%) led the S&P, while energy (-1.1%) and telecom (-1.3%) lagged. Overnight, the Shanghai Composite (+0.1%) eked out a slight gain despite trading lower for most of the session, while the Hang Seng (-0.3%) and Nikkei (-0.3%) set the overall tone for Asia amid uncertainty regarding the North Korean conflict. In Europe, equities are mixed, as the STOXX 600 (-0.1%) slipped off recent record highs. Elsewhere, WTI crude oil ($49.44/barrel) is recovering after its recent tumble, COMEX gold ($1,268/oz.) is tracking to its fourth monthly gain, and the yield on 10-year Treasuries is little changed at 2.30%.
- First quarter GDP disappoints. The U.S. economy grew at a real annualized rate of 0.7% in the first quarter of 2017, after growing at a 2.1% in the fourth quarter of 2016, according to the initial estimate released this morning. Consensus expectations had been lowered over the past month following some soft readings on economic data, but the report is a small disappointment compared to consensus expectations. Weakness in consumer spending was noteworthy, but the biggest drag was from inventories after unusual strength the prior quarter. Fixed investment, which includes business investment and housing, was a bright spot, making its largest contribution to GDP growth since the first quarter of 2012. Distortions in seasonality calculations may have also played a role in the weak data: since the end of the Great Recession, first quarter GDP growth has averaged near 1% while growth over the rest of the year has averaged near 2.5%. We expect business spending to continue to be a strength in 2017 as businesses anticipate better economic growth and policy support, while consumer spending may rebound with continued support from a largely healthy job market.
- Government shutdown likely to be avoided over the weekend. Republicans and Democrats are reportedly very close to a deal to fund the government and avoid a shutdown ahead of the midnight deadline tonight. The Republicans, who do not want to be blamed for an impasse, have already expressed willingness to compromise on some of the most contentious issues like border wall funding, making a deal more likely. Even if a comprehensive deal cannot be reached today, they may file a short extension and finalize an agreement next week. As we noted in a recent blog, government shutdowns that have occurred in recent decades have generally been short-lived and not very disruptive to markets.
- Wages and benefits accelerate. The Labor Department’s Employment Cost Index, which includes both wages and benefits, rose 0.8% in the first quarter of 2016, ahead of expectations and the best quarterly rate of growth since before the Great Recession. Stronger wage growth points to a tightening labor market, although spare capacity and a low participation rate will likely keep any possibility for outsized wage acceleration in check. Despite somewhat soft economic data, wage pressures will keep the Federal Reserve (Fed) on track to raise rates 1-2 more times in 2017.
- Sell in May? Today is the last trading day of April, which will bring with it the popular trading axiom of “sell in May and go away,” but how much truth is behind it, and does that truth still hold? Today on the LPL Research blog we will take a closer look at this popular phenomena.
- EU Leaders Summit
- China: Mfg. & Non-Mfg. PMI (Apr)
Past performance is no guarantee of future results.
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Stock investing involves risk including loss of principal.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.
Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.
Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.
High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.
Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.
Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
Tracking # 1-603835