Market Update: Friday, July 27, 2018

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Daily Insights

  • GDP growth strongest since 2014. Real gross domestic product (GDP) grew at a 4.1% annualized rate in the second quarter, the fastest pace since 2014, but just below consensus expectations for 4.2% growth. The print was one of the highest of the business cycle, thanks to boosts from new tax policies and a glut of exports on top of a solidly improving economy. Consumer spending contributed 66% to GDP growth, while net exports accounted for 26% (its highest contribution since 2013). We’ll dive into the numbers later today on the LPL Research blog.

  • Was yesterday that bad? Facebook drooped 19% after disappointing earnings, sinking the Nasdaq 100 Index by 1.44%. Yet, under the surface things weren’t that bad, as the Nasdaq 100 Equal Weighted Index was down only 0.11%. As the name implies, this index weights all 100 components equally, indicating that the other components held up quite well. Not to be outdone, the NYSE advance/decline line made another new all-time high yesterday. We continue to be impressed by the overall market breadth, suggesting this is a healthy bull market.

  • Fed’s preferred inflation reading for Q2 comes in a bit light. As part of today’s GDP report, core personal consumption expenditures for the second quarter came in at 2%, below consensus expectations for 2.2% and down from 2.2% in the first quarter. We continue to expect modestly higher inflation in the second half of 2018, as noted in our Midyear Outlook 2018, due to stronger U.S. economic growth and tightening labor markets; however, this reading does take a little bit of pressure off the Federal Reserve after President Trump voiced his opposition to rate hikes. We believe this inflation data slightly increases the odds of one more rate hike this fall rather than two given trade tensions and growth risks overseas, though odds may be fairly balanced at this point.

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Index data obtained via FactSet

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