Q1 GDP Report: Don't Use Yesterday's News To Predict Tomorrow's Inflation

seekingalpha04-26

Stocks initially plunged but recovered to finish at their highs for the session, which is a bullish sign.Meta Platforms' disappointing earnings guidance and weak GDP growth, combined with an uptick in...

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Inflation\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-26 22:19 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4686661-q1-gdp-report-dont-use-yesterdays-news-to-predict-tomorrows-inflation><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Stocks initially plunged but recovered to finish at their highs for the session, which is a bullish sign.Meta Platforms' disappointing earnings guidance and weak GDP growth, combined with an uptick in...</p>\n\n<a href=\"https://seekingalpha.com/article/4686661-q1-gdp-report-dont-use-yesterdays-news-to-predict-tomorrows-inflation\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0417517546.SGD","symbol_name":"Allianz US Equity Cl AT Acc 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ACC"},"translate_title":"Q1国内生产总值报告：不要用昨天的新闻来预测明天的通货膨胀","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"META":1,"US10Y.BOND":0.71,"US12M.BOND":0.71,"US2Y.BOND":0.71,"US30Y.BOND":0.71,"US7Y.BOND":0.71,"US6M.BOND":0.71,"US5Y.BOND":0.71,"US3Y.BOND":0.71,"US912796CX52.BOND":0.6,"US912797FH58.BOND":0.6,"US912797FS14.BOND":0.6,"US912797GB79.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HH31.BOND":0.6},"content_text":"Stocks initially plunged but recovered to finish at their highs for the session, which is a bullish sign.Meta Platforms' disappointing earnings guidance and weak GDP growth, combined with an uptick in inflation, weighed on stocks and bonds.Despite the first-quarter GDP anomaly, the long-term trend suggests a soft landing with a continuation of the bull market.Jian Fan Yesterday, stocks plunged at the open but worked their way back throughout the trading session to close near their highs for the day, which is a bullish sign. The reason for the selling was twofold. Meta Platforms (META) disappointed investors with its earnings guidance and capital spending plans, which weighed on the technology sector. Then, the Bureau of Economic Analysis reported that first-quarter GDP grew a weaker-than-expected 1.6%. The weaker growth would have been good news, but it was accompanied by an increase in the rate of inflation during the quarter, which should have come as no surprise given the hotter-than-expected reads we had in the Consumer Price Index during the quarter. That combination weighed on stock prices, and drove bond yields higher, extending the market pullback of the past several weeks. No matter, this is another bear trap, like what we saw last February and August, that gives bulls another buying opportunity. Finviz Growth in the first quarter did decelerate, but not to the extent that the headline number suggests. Consumer spending still grew at a healthy 2.5%, contributing 1.7% to the growth rate. Housing made a strong comeback, with homebuilding surging 13.9%, contributing 0.5% to growth in the quarter. Capital investment also increased 2.9%, adding 0.4% to growth. Government spending, for all its criticism, chipped in a modest 0.2%. The big drags on growth were inventory building and a trade deficit, which subtracted 1.2% from the final number, but inventories eventually must be rebuilt, which means that last quarter's weakness is tomorrow's growth. That should help the manufacturing sector, which is slowly returning to growth. Bloomberg The increase in inflation was fueled by the ever-sticky category of the service sector that does not include housing and energy. Yet, this is a speed bump in the downtrend. While the GDP price deflator, which is the broadest measure of inflation, did rise 3.7% during the quarter, it has risen a far more modest 2.4% over the past year. That is already very close to the Fed's target. My critics will say that I am ignoring this short-term anomaly, and I am because the Fed is not likely to make long-term policy decisions based on very short-term fluctuations in the inflation data. It will look at the sustainability of the long-term trend. If this short-term uptick strongly indicates that the long-term trend has come to an end, as many market commentators and pundits are suggesting today, then that is a different story. I base my case on what the leading indicators are saying about the start of the second quarter. The preliminary PMI report for April from S&P Global showed a meaningful softening in service-sector activity, and the \"second-lowest overall cost increase for three-and-a-half years\" for service providers. This report tells you where the rate of inflation is heading, while the GDP report tells you where it has been. I am not going to use yesterday's data to forecast tomorrow's rate of price increases. Furthermore, according to Chris Williamson, the Chief Business Economist at S&P Global, \"the deterioration in demand and cooling of the labor market fed through to lower price pressures, as April saw a welcome easing in rates of increase for selling prices for both goods and services.\" We can argue about when the first-rate cut from the Fed will come and how many there will be this year, but the more important discussion is whether the expansion continues, and whether this pullback in the stock market is another pause to refresh the bull or a sharper 10% correction that could turn into a bear market plunge. I have advocated for rate cuts to start sooner rather than later, but if that doesn't happen it still looks like the economy averts a recession this year, which means that the bull market will continue with minimal drawdowns and new all-time highs later this year. The 2-year yield is likely peaking around 5%, and it should start to gradually decline again as investors recognize that the disinflationary trend is still intact.  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