After a brief dip in afternoon trading, U.S. equities were able to finish higher following two days of solid declines, but the continued U.S.-China trade uncertainty and global growth concerns kept investors on edge. Treasury yields added to a recent drop and the U.S. dollar was little changed, amid a mixed bag of economic data, with a better-than-expected revision to Q1 GDP growth coming up against another soft read on housing. Meanwhile, crude oil prices tumbled and gold was higher. In equity news, Dollar General posted relatively upbeat quarterly results and Dollar Tree was higher despite its mixed guidance, but PVH suffered following its lowered outlook.
The Dow Jones Industrial Average (DJIA) rose 43 points (0.2%) to 25,170, the S&P 500 Index added 6 points (0.2%) to 2,789, and the Nasdaq Composite increased 20 points (0.3%) to 7,568. In light-to-moderate volume, 700 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil decreased $2.22 to $56.59 per barrel and wholesale gasoline was down $0.07 at $1.85 per gallon. Elsewhere, the Bloomberg gold spot price rose $8.22 to $1,288.00 per ounce, and the Dollar Index— a comparison of the U.S. dollar to six major world currencies—was flat at 98.14.
The second look (of three) at Q1 Gross Domestic Product the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.1%, from the first release’s 3.2% gain and versus the Bloomberg forecast of an adjustment to a 3.0% expansion. Q4 GDP grew by an unrevised 2.2% rate. Personal consumption was revised to a 1.3% increase, from the first estimate of a 1.2% gain, where it was expected to remain, and compared to the unrevised 2.5% rise seen in Q4.
On inflation, the GDP Price Index was revised to a 0.8% increase, from the initially-reported 0.9% gain, and compared to estimates to be unrevised, while the core PCE Index, which excludes food and energy, was adjusted to a 1.0% rise, from the previous estimate of a 1.3% increase, and compared to forecasts to be unadjusted.
First quarter real GDP growth was stronger than expected, but boosted significantly by inventories and net trade; both of which are expected to reverse in the second quarter. Moreover, we got the April readings on industrial production and retail sales; which were both big misses, and according to the Federal Reserve capacity utilization dipped again. Trade tensions will likely continue to contribute to increase volatility and the longer it drags on, the bigger hit to economic growth, consumer/business confidence and the stock market. Our neutral stance around U.S. equities suggests keeping allocations no higher than longer-term strategic targets, with a large cap bias; using volatility for rebalancing opportunities. For those investors who don’t have broad international exposure, now may be a good time to consider areas that may feel less impact from the U.S.-China trade dispute.
Preliminary wholesale inventories were up 0.7% month-over-month (m/m) for April, after March’s favorably-revised flat reading, and compared to expectations of 0.1% rise.
Pending home sales declined 1.5% m/m in April, versus projections of a 0.5% increase, and following the upwardly-revised 3.9% jump registered in March. Sales were 0.4% higher y/y. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.
Treasuries were slightly higher, as the yield on the 2-year note was unchanged at 2.08%, while the yield on the 10-year note ticked 1 basis point (bp) lower to 2.22% and the 30-year bond rate lost 3 bps 2.65%. The markets have been choppy as of late amid escalated trade tensions and some mixed global economic data, which have fostered a drop in bond yields and a coinciding inversion of a key portion of the Treasury yield curve to resuscitate recession concerns.
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