GDP: Better Than It Looked
Economic Update
Regions Financial
regions.com
April 25: The initial estimate from the BEA puts Q1 real GDP growth at an annual rate of 1.6%, well short of expectations and ending a run of six straight quarters of growth above 2%. Consumer spending; business investment in equipment, machinery, and intellectual property products; and residential fixed investment were the primary supports for growth. At the same time, however, a wider trade deficit and a slower pace of inventory accumulation in the nonfarm business sector acted as meaningful drags on Q1 growth, with a drop in defense spending acting as a minor drag.
The initial estimate of GDP in any given quarter is based on highly incomplete source data and, as such, is prone to sizable revisions. We'll also note that inventories and trade tend to be the most volatile components of GDP and often team up to act as swing factors, which to some extent is the case in the Q1 data. To that point, real private domestic demand, the sum of household and business spending, rose at an annual rate of 3.1% in Q1, down only slightly from the 3.3% pace set in Q4 2023. In that sense, we find the miss on Q1 growth to be much less concerning than had the shortfall been accounted for by a drop in fixed investment.
Richard F. Moody
Dollar Rally Brings Pain & Gain
Market Commentary
Cresset
cressetcapital.com
April 25: The U.S. dollar continues to climb: Since the beginning of 2021, it has gained 18% in value against its major trading currencies. The dollar just hit a 34-year high against the Japanese yen, which is trading around 154 yen/dollar. The greenback owes its strength to a resilient U.S. economy and higher-for-longer Federal Reserve policy. For an import-oriented economy like the U.S., a strong dollar is more of a blessing than a curse. Dollar strength, however, reduces the competitiveness of U.S. exports, making U.S. goods more expensive for foreign buyers and potentially reducing demand, and negatively affecting U.S. companies that rely on international sales. Translating foreign sales into dollars crimps profits for U.S. multinational corporations when the dollar is strong, which can have a negative impact on their financial performance. Sixty-two percent of S&P 500 revenue is earned abroad, according to S&P Global.
It is interesting to note that most developed markets are beating the S&P 500 this year in their local currencies. We expect dollar strength to continue this year as long as foreign central banks cut rates while the Fed stands pat.
Jack Ablin
U.S. Balance Sheets Shine
Special Report
BCA Research
bcaresearch.com
April 25: A recession is likely to arrive over the next 12-to-24 months. Our deep dive into the balance sheets of top-listed firms around the world suggests that corporate health differs substantially across key equity markets. The health of corporate balance sheets will play an important role in determining the magnitude of the next recession. From this perspective, large nonfinancial companies in the U.S. and Japan appear most resilient (in that order), Europe is less resilient, and China is the least resilient of all.
Peter Berezin, Ritika Mankar, and team
Don't Fear a Stock Selloff
Market Perpective
Truist Advisory Services
www.trusit.com/wealth
April 22: After a five-month winning streak, April has been less kind to stocks. The S&P 500 has declined for three straight weeks and suffered the first correction of at least 5% for the year. Pullbacks are always uncomfortable and always come with bad news. However, with stocks, it's often two steps forward, one step back. As we often say, pullbacks are the admission price to the market.
Notably, since March 9, 2009, when stocks bottomed following the global financial crisis, we count 28 previous pullbacks of at least 5% for the S&P 500. Impressively, despite these setbacks, stocks are up 634% on a price basis and 886% including dividends over that entire period. The pullbacks since 2009 have been in a wide range, with a median decline of 7.5% (10.4% average) over 30 calendar days (average 50 days). This compares to the current decline of 5.5% over 22 days. Based on the median and average pullbacks, that suggests downside from current levels would be limited to somewhere between 2% to 5% (S&P 500 level of roughly 4700-4850).
Keith Lerner
Hat Tip to Jeremy Siegel
Perspective
Capital Investment Services of America
Capinv.com
March 31: In 1994, Jeremy Siegel wrote Stocks for the Long Run. On the 30th anniversary of its publication, we thought it worth revisiting the most important message of the book.
"The long-term stability of [stock market] returns is all the more surprising when one reflects on the dramatic changes that have taken place in our society....The United States evolved from an agricultural to an industrial economy and now to a postindustrial service- and technology-oriented economy. The world shifted from a gold standard to a paper money standard. And information, which once took weeks to cross the country, can now be transmitted instantaneously and broadcast simultaneously around the world. Yet, despite mammoth changes in the basic factors generating wealth for shareholders, equity returns have shown an astounding persistence."
Siegel described astounding persistence at a time before iPhones, gene editing, reusable rockets, Teslas, and "AI" (whether it's Artificial or Augmented Intelligence). When he wrote Stocks in '94, Microsoft hadn't yet released the CD-ROM for Windows 95, you couldn't Google anything, and e-commerce didn't exist.
Thirty years ago, the astounding persistence of equity returns had already funded countless college tuitions, second homes, early retirements, career switches, pension plans, 401(k)s, humanitarian relief efforts, and climate change studies. Thirty years from now, equity returns will fund those objectives and more. Paul A. Muzzey
Email: editors@barrons.com
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(END) Dow Jones Newswires
April 26, 2024 21:30 ET (01:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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