Much is made of the “Goldilocks” backdrop for the economy and stock market being a myth of maybe hyperbolic proportions, but Friday’s session was a clear example that it’s real.
The major indices were muddling along for most of the session, but the underlying strength of the market improved each hour. There was an impressive rally into that close that lifted all the indices to the high point of the session, with the Dow Jones Industrial Average staging a 150-point intraday reversal.
The GDP report not only came in significantly stronger than any of the guesses, but the 3.2% growth was accompanied with declining inflation pressure. That is the true definition of a Goldilocks scenario. In fact, some might worry the current inflation trend is too good.
Core PCE (excludes food and energy):
- 1Q 2018 2.2%
- 2Q 2018 2.1%
- 3Q 2018 1.6%
- 4Q 2018 1.8%
- 1Q 2019 1.3%
Friday saw extremely strong market breadth, especially for stocks traded on the New York Stock Exchange.
- Advancers 1,917
- Decliners 1,011
- New 52- week highs 105
- New 52-week lows 27
- Up Volume 1.21 billion
- Down Volume 618.9 million
For the boarder market, the only fundamentally weak spot was Technology, which lurched into the red anchored by one of the worst sessions for Intel (INTC) in years. The biggest loser of the session was Energy, but that was all from comments from President Trump calling on OPEC to help bring oil prices lower.
S&P 500 Index
Communication Services (XLC)
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
This morning we got Personal Income and Spending, and it’s clear, the recession scares of 2018 have dissipated in a big way.
- Incomes +11.4 billion or +0.1%
- Spending +126.5 billion or +0.9%
- Savings 6.5% from 7.3%
This is a very important trend, which also belies the notion that first quarter GDP saw weak consumer spending. It was “weaker” but actually better than any of the experts anticipated at the start of the year.
Recession fears have faded from the headlines and consumers are exhibiting strength in the best way possible = buying/spending money.