May 16, 2017

Stocks gapped up at the open this morning but quickly faded. The Dow is currently trading down 10 pts and the SPX is down .1%. Technology and consumer staples sectors are up modestly, but all other sectors are lower. There are a few sub-groups of stocks in the green, including semiconductors and gold miners; most retailers are down after Dick’s Sporting Goods (DKS) reported weak first quarter results. The VIX Index is hovering around 10.5, so no change there. The dollar is a bit weaker; Bloomberg reports the dollar has fallen back to pre-election levels. Many investors don’t believe President Trump’s pro-growth political agenda will pan out. Commodities are mixed and WTI crude oil is unchanged at $48.85/barrel. Bonds are rising in price again, falling in yield. The 5- and 10-year Treasury yields are back down to 1.83% and 2.31%, respectively. 

China reported industrial output rose 6.5% in April vs. year-ago levels. That’s significantly slower than the recent trend. Retail sales (+10.7%) and fixed asset investment (+8.9%) came in pretty close to economists’ expectations, but growth rates are decelerating there as well. China’s economy, boosted by government stimulus, has been in good shape lately. But  it looks like growth fell off a bit in April. Bloomberg’s Li Keqiang Index, which measures electricity usage, rail care volumes and bank loan activity, has been in a sharp upswing since April 2016. 

Home Depot (HD) reported a solid quarter with revenue and earnings above Wall Street forecasts. The company reported same-store-sales growth of 5.5%. In addition, online sales rose 23%. Roofing, appliances and flooring each grew more than 10%, indicating strength in major home remodeling projects. The CEO said sales so far in May have been “very good.” The stock is up 1.3% this morning. 

Bloomberg reported yesterday that both the US Bureau of Labor Statistics and Bureau of Economic Analysis agree that official measurements of both gross domestic product (GDP) and inflation are off a bit. These agencies know some changes to data gathering and index calculation methods need to be implemented, but that hasn’t been done due to “high computational intensity and cost.” In general, inflation has been overstated and therefore economic growth has been understated. The total effect, they say, is that growth was understated by .4% in 2000, 2005, 2010, and 2015. That’s material, but it certainly doesn’t change the picture of the overall economy. And it doesn’t explain why GDP has been extremely low in the first quarters of recent years. Finally, the new findings don’t really explain why economic growth has been abnormally low since the last recession.
 


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