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Weekly Review - May 1, 2017

Weekly Review - May 1, 2017

Guest Post - Monday, May 01, 2017


Economic data for the week were highlighted by a weaker-than-expected result for 1st quarter GDP, and disappointing sentiment data, while housing ended mixed and jobless claims remained low.

Stock markets rose globally, with help from results from the French presidential election that favored a conventional, pro-euro candidate. Bonds declined a bit on the U.S. investment-side, but high yield and foreign debt fared well. Commodities were mixed, as oil prices were little changed during the week.

Economic Notes

(-) The advance GDP report for the first quarter of 2017 was weaker than expected, showing growth of only +0.7%, compared to the +1.0% expected. It appeared consumption growth was a weak spot in the report, with both services growth down (much of that in the utilities segment), but also due to a sharp decline in auto sales of -16%. However, business fixed investments (including a contribution from the energy sector, like oil rigs) and exports contributed positively—the former up by +10% and latter by +6%. Per other economic reports over the period, it appeared some or much of the shortfall could be weather-related. In other GDP-related data, the PCE price index rose +2.0% for Q1, which wasn’t much of a surprise and lying right at the Fed’s target policy level. The employment cost index rose +0.8% for Q1, a bit above expected, to a new cycle high and a rate of +2.4% year-over-year for compensation growth.

Interestingly, the first quarters over the last few years have been marked by weakness, which has been attributed to similar weather-related stumbles and/or seasonal measurement difficulties. Seasonal variations are certainly adjusted for as winter is a slow period anyway, but extra differentials no captured seem to have played a role in recent winters appearing worse than those historically. Additionally, there are questions of how to better measure activity in certain sectors more heavily influenced by technology and intellectual property, especially related to productivity gains, in addition to government spending, which can have a less-predictable quality. This initial Q1 number will be fine-tuned during the next several months of releases, and it appears the consensus estimate for Q2 GDP is hovering around the 2.5% range.

(-) Durable goods orders for March rose +0.7%, which was about half the +1.3% increase expected, with gains from defense capital goods and commercial aircraft, which tend to be lumpy. Core orders rose +0.2%, which was similarly short of the expected +0.5% gain for the month, but did include a revision upward for a prior month. Core shipments rose +0.4%, which surpassed the +0.1% median forecast. Durable goods inventories also rose by a tenth of a percent, which was a bit below expectations. Overall, a lackluster report for the most part.

(+) The Chicago PMI for April rose +0.6 points to 58.3—the highest level in two years. Optimism about business conditions rose as did new orders, while production and order backlogs lagged somewhat. The month’s anecdotal question about the impact of Fed action moving rates higher in the next six months resulted in a roughly balanced neutral response.

(0) The advance goods trade balance report showed a widening of the trade deficit to -$64.8 bil., but didn’t widen as much as the -$65.2 bil. expected. Imports declined -1%, which were concentrated mostly in food and capital goods declines, while auto imports rose by +4%. Exports fell a similar -1%, in both the auto and consumer goods areas.

(0/+) The S&P/Case Shiller home price index rose +0.7% for February, which was on target with the forecasted gain for the month. Prices rose in all 20 cities, led by Seattle, Dallas and San Francisco. Year-over-year, the pace of change ticked higher to +5.9%, which remains very strong, and the fastest rate of change in several years.

(+) The FHFA house price index similarly rose +0.8% for Feb., which bested the lower estimated increase of +0.4%. The strength was also broad, with gains in all of the nine regions, led by the deep South and New England. Year-over-year, gains were even stronger, at a +6.4% rate. This index is a bit broader than just the 20-city Case-Schiller version, so captures medium-sized and smaller areas.

(+) New home sales for March rose +5.8% to 621k on a seasonally-adjusted annualized rate, beating the -0.5% decline expected; included was a revision higher for several prior months as well, which was a positive. Regionally, sales rose sharply in the West, and less dramatically in the Northeast and South. Inventory declined by a few ticks to 5.2 months supply, with the key change being in ‘homes not started’, which implies stronger permit activity. There has been a bit more interest in home sales data in recent months due to continued hopes for a pickup that has yet to occur en masse, coupled with fears of higher interest rates choking off some borrowing demand.

(0) Pending home sales for March declined -0.8%, which was a bit better than the -1.0% drop expected, and reversing the solid numbers of the prior month. Regionally, the South saw a gain of just over a percent, while the rest of the nation declined 1-3%—the composition of which could have been weather-related.

(-) The index of consumer confidence fell -4.6 points to 120.3 for April, which was just below the forecasted 122.5 level. Consumer assessments of labor market conditions declined just slightly, present economic conditions fell -3 points while future expectations were down nearly -6 points.

(-) The final April reading of the Univ. of Michigan consumer sentiment index showed a decline of -1 point over the month to 97.0, compared to an expected flat result. Assessments of current conditions fell several points, while expectations for the future were generally flat. Inflation expectations for the coming year were unchanged at +2.5%, as were expectations for the coming 5-10 years, at +2.4%.

(-) Initial jobless claims for the Apr. 22 ending week rose +14k to 257k, which was above the 245k expected. Continuing claims for the Apr. 15 week rose +10k to 1,988k, which ended up being a bit below the 2,007k consensus expectation. There were no special factors noted by the DOL, although some seasonal spring break factors could have been involved. These levels remain quite low, which is a positive labor market sign.

Market Notes

Period ending 4/28/2017

1 Week (%)

YTD (%)




S&P 500



Russell 2000









BlmbgBarcl U.S. Aggregate



U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.



















U.S. stocks generally gained ground on the week, with the Nasdaq and Russell 2000 reaching record highs on little fanfare. The primary driver of equity sentiment globally early in the week was the result of the French election last weekend, which favored Macron, a mainstream candidate, who will meet 2nd place finisher populist LePen in the May runoff finale. Legislative efforts to push ahead with tax reform remain on the table, while chances of a complete termination of NAFTA seemed to lessen as Trump tempered his language a bit about the treaty. From a sector standpoint, growth sectors technology and health care led the way, with sharp gains, followed by consumer cyclicals; telecom and utilities lagged with declines for the week.

Foreign stocks fared better than domestic on net, with more direct sentiment influence in Europe from a sentiment trifecta, so to speak. France’s election results were the primary catalyst—French stocks gained +6% and Germany was up +5%, each partially helped by a stronger euro vs. USD as well. Additionally, the ECB’s commentary and sentiment that downside risks to the continent’s economy have ‘further diminished’ could have helped, although stimulus efforts were not pulled back. Better-than-expected European earnings also helped sentiment. Emerging market equities also fared well, and better than those in the U.S., while Japan lagged.

U.S. bonds suffered slightly the investment-grade side as interest rates ticked higher, more so with longer durations than shorter, while high yield debt gained in keeping with stronger company earnings results for the quarter. Foreign bonds performed similarly in local terms, despite help from spreads tightening in Europe post-election, but a weaker dollar helped both developed and emerging market bond index results more than anything else.

Real estate generally experienced negative results in the U.S., down several percent, led by retail/regional malls, while European real estate performed well in keeping with broader equities.

Commodities were mixed on net, despite the tailwind of a weaker dollar. The energy segment lost ground, despite crude oil being little changed on the week, with per barrel prices falling slightly from $49.60 to $49.30. Industrial metals gains were offset by declines in precious metals as ‘risk off’ trades perhaps related to the French election results pulled back.

Sources: FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.

Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.

Additional Reading

Read the previous Weekly Review - April 24, 2017.

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