No Growth No Problem

No growth no problem.  Investors largely ignored weak economic numbers in yesterday’s session as they bought stocks on hopes of further stimulus.  Stocks went briefly into the red but ultimately climbed into positive territory, a move that was most likely helped by end of quarter portfolio dressing.

WHAT YOU NEED TO KNOW:

1)  Trade talks between the US and China continue.  WHILE YOU SLEPT a US delegation announced that discussions with Beijing continue to be productive.  China made another large purchase of US Soybeans and Asian markets cheered the move rallying stocks and industrial commodities like copper.

2)  Brexit chaos continues.  Still no solution in sight, the House of Commons will most likely vote on one part of the Brexit deal today.  Up for vote are terms of the UK’s exit and not what happens beyond.  Beyond is considered the more important vote and that vote may happen next week, though it does not appear to have the votes to pass at this point.

3)  The US Economy has slowed and there is no way to mince words around it.  US GDP growth shrank to +2.2% from +3.4% in the prior quarter, which was a downward revision of earlier estimates.  Looking back to the second quarter, GDP grew at +4.2%.  While the news of a slowdown is certainly not good, investors seemed prepared for it, mentally at least.

4)  The housing market continues to flash signs of weakness.  Yesterday’s Pending Home Sales number came in at a larger than expected month over month decline of -1.0%  versus the +4.3% growth of the prior period.  The continued bad news did not affect the real estate sector which continues to go up along with bonds.  As bond yields drop, equity-based higher yielding instruments such as REITS and Utility stocks, known as bond proxies, tend to trade up.

THE MARKETS:

Stocks shrugged off early session losses climbing steadily into the close as traders continued the process of window dressing.  Window dressing is when portfolio managers sell their less attractive positions and replace them with ones that appear to have more upside.  Window dressing usually occurs in the last days of a quarter because portfolio managers, who typically report on a quarterly basis, prefer to reveal a nicely squared portfolio to investors.  Yesterday’s positive move in stocks resulted in the S&P500 closing up by +0.36%, the Dow Jones Industrial Average trading up by +0.36, the Russell 2000 rising by +.85%, and the NASDAQ 100 moving up by +0.1%.  Bonds took a break yesterday pulling back slightly and the ten year treasury added +3 basis points closing at 2.39%.  The 2/10 yield curve is at +15 basis points and the 3 month / 10 year yield curve remains inverted.

WHAT TO LOOK FOR TODAY:

This morning we will get Personal Income from February and it is expected to have grown by +0.3% versus falling by -0.1 in the prior month.  We will also get Personal Spending, which is expected to have grown by +0.3 versus the prior report of -0.5%.  The PCE and and core PCE deflator are expected to have grown year over year by +1.4% and +1.7% versus last month’s growth of +1.7% and 1.9% respectively.  The Core PCE deflator is the Fed's favorite inflation metric and a +1.7% print would put it right below the Fed’s +2.0 inflation target.  Later this morning we get New Home Sales which are expected to have grown by +2.1% after declining by -6.9% in the prior month.  The final University of Michigan Sentiment Index for March is expected to be at 97.8, up from 93.8 in February.  Fed governors Kaplan and Quarles will speak today and Fed watchers will be looking for hints of rate cuts, though no speakers have yet to support a cut.  Lyft will begin trading on the NASDAQ today and has priced its IPO at the high end price of $72.  Next week’s numbers will include Retail Sales, Construction Spending, PMI’s, and the Monthly Employment Situation amongst others, so it will be a packed week.  Today marks the end of a quarter which can lead to a bit of volatility as traders continue to clean up their portfolios.

daily chartbook 2019-03-29