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May Economic Update

Market Summary

Wall Street shifted its focus to earnings in April with the news turning out to be quite positive. Through April 26, first-quarter results for S&P 500 firms had beaten expectations by 5.3%, which is slightly better than the historical average of 4.8%. A strong first-quarter gross domestic product reading and solid consumer spending and hiring numbers did much to quell worries about the economy slowing. While employment numbers remain strong, existing home sales retreated, mortgage rates rose, and oil experienced a sharp sell off at the end of the April into the beginning of May. (1)

Economic Developments

Statistically speaking, economists and investors found much to like with the latest round of fundamental indicators. The first quarter had been a good one: the federal government’s initial estimate of economic growth in that period was 3.2%, far above the 2.2% of Q4 and the 2.3% consensus forecast of analysts surveyed by MarketWatch. In March alone, consumer spending increased 0.9%, and retail sales improved 1.6%. (2,3)

Real estate continues to give signs of slowing with existing home sales declining once again, down 4.9% for March which is the start of the spring home buying season. Mortgage rates crept back up with the average interest rate on the 30-year, fixed-rate home loan reaching 4.20% on April 25 (previously 4.08% on March 28).

However, there were some indications of a turnaround for this recent real estate slump. New home sales picked up in March reaching an 18-month peak, increasing 4.5% month-over-month. On the down side of the increased sales, it appeared that developers and builders were slashing prices with the Census Bureau reporting the median new home price fell 9.7% in March to a 2-year low of $302,700. (2,4,5)

China Trade Negations

After a quiet couple of months on the trade front, the issue once again surfaced over this past weekend. President Trump threatened to increase trade tariffs on Chinese imports from 10% to 25% beginning this Friday, May 10. While the intent of this high-stakes move is to apply further pressure and leverage to potentially advance negations, this may backfire as the Chinese Government is now threatening to back out of trade negotiations scheduled for this Wednesday.

Looking Ahead…