Is the economy getting too hot? Well, the Atlanta Fed sees its current quarter Gross Domestic Product (GDP) approaching 3.0%, a number never reached on an annual basis under President Obama, but it still might have spooked the Fed. At the start of the month, the Fed saw growth coming in at 1.8%; and now, it’s 2.9%.
Initial |
GDP |
PCE |
|
2-May |
Constr. spending, ISM Manufacturing |
1.8 |
2.6 |
4-May |
Intl. trade, M3 Manufacturing |
1.7 |
2.6 |
5-May |
Auto sales, ISM Non-manuf |
2.1 |
2.9 |
6-May |
Employment situation |
2.2 |
3.0 |
10-May |
Wholesale trade |
2.2 |
3.0 |
11-May |
Monthly Treasury Statement |
2.3 |
3.0 |
12-May |
Import/export prices |
2.3 |
3.0 |
13-May |
Retail trade |
2.8 |
3.7 |
17-May |
Housing starts, CPI, Industrial Production |
2.5 |
3.6 |
20-May |
Existing home sales |
2.4 |
3.6 |
24-May |
New home sales/construction costs |
2.6 |
3.6 |
25-May |
Advance intl goods trade |
2.8 |
3.6 |
26-May |
Advance durable manufacturing |
2.9 |
3.6 |
Stocks traded in a narrow range and struggled to maintain gains. While there wasn’t a sense of panic, there was a bit of confusion, which sent investors back into utilities and consumer staple names.
Utilities have been amazing. Not only have people pocketed big dividends, but the gain on principal is also enormous. Even though they gave up some profits yesterday, it’s been the same story for energy and material stocks this year.
This defensive posture for the market will keep stocks ranged-bound until next week’s jobs report.
Sector Performance |
Session |
YTD |
|
XLU |
Utilities |
+1.3% |
+11.4% |
XLP |
Consumer Staples |
+0.4% |
+4.4% |
XLE |
Energy |
-0.4% |
+11.7% |
XLB |
Materials |
-1.0% |
+9.9% |
However, look for the overall market to repeat itself as we cautiously head into a three day weekend. We had a week to grapple with the notion that the first good blimp in the economy should be greeted with a speed bump.
Yes, 25 basis points is a tiny thing and shouldn’t slow things down, but I am reminded of Hans Christian Andersen’s The Princess and the Pea. Those whining brats on Wall Street will complain no matter how small the hike. That said, those pros are sucking wind big time and might wise up and stick around this time.
The bottom line is that a rate hike has to be justified and probably limited to just one before the election.