May Economic Update
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)
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.
Fundamental economic indicators are, for the most part, still strong. Key housing indicators aside, measurements of hiring, consumer spending, and business activity are holding steady.
The three major U.S. stock benchmarks all advanced nicely in April, and the S&P 500 and Nasdaq Composite both closed at record peaks late last month. Nearly 50% of S&P 500 firms had reported Q1 results through the end of April, and those collective earnings results helped all three indices gain 2.5% or more for the month. (6)
Choppy waters may lie ahead as the developing China trade saga will likely be the dominant story in May - a month which historically has been known as a period of profit-taking ahead of the summer months. On the flip side, if these two economic powerhouses can work out a deal - temporary or permanent - it would undoubtedly advance equities to all-time highs once again.
Monthly Financial Tip:
After a significant life event, such as a marriage or the birth of a child, it is smart to review your insurance coverage. You may need more (or less) coverage or even an extra kind of insurance.
1 - factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_042619.pdf [4/26/19]
2 - marketwatch.com/tools/calendars/economic [4/30/19]
3 - investing.com/economic-calendar/ [4/30/19]
4 - consumeraffairs.com/news/new-home-sales-surge-in-march-while-existing-home-sales-decline-042419.html [4/24/19]
5 - freddiemac.com/pmms/archive.html [4/30/19]
6 - barchart.com/stocks/indices?viewName=performance [4/30/19]
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.