Cyclicals lead the way to all-time highs. Stocks set a new S&P 500 Index all-time high earlier this week, officially keeping the bull market alive. The best performing sector over the last month has quietly been financials, followed by technology and consumer discretionary, all traditional risk-on sectors where strength likely bodes well for the market overall. However, stocks have now outperformed the Bloomberg Barclays U.S. Aggregate Bond Index by more than 9% over the past 3 months, signaling that at least a modest pullback may be overdue for equities. On any such pullback we would look the 2815 level to act as technical support and maintain our market-weight recommendation for equities overall.
GDP growth surprises. First-quarter gross domestic product (GDP) growth beat all consensus expectations, in an appropriate end to a quarter full of surprises. GDP rose 3.2% last quarter, the best first-quarter gain since 2015 and above the highest Bloomberg consensus estimate for growth. Net exports contributed 1% to headline GDP, while consumer spending added 0.8% and inventories accounted for 0.7%. We’ll outline details of the report on today’s LPL Research blog.
Personal consumption moderates, pressuring Treasury yields. Treasury yields are down across the curve this morning as investors reassess their inflation expectations after this morning’s GDP data showed a moderation in consumer demand. A decline in purchases of big-ticket items like vehicles and a drop in services-related outlays led to a 1.2% increase in core personal consumption expenditures (PCE), decelerating from the fourth quarter’s 2.5% growth. The PCE price index, as well as personal income, also decelerated, leading some analysts, including White House Chief Economic Advisor Larry Kudlow, to speculate that the Federal Reserve’s next move may be to cut rates, rather than resume hikes.
- GDP Report (Initial, Q1 2019); Cons: 1.8%, LP: 2.2%
- University of Michigan Sentiment Index (Apr); LP: 96.9
- China Industrial Profits (Mar)
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