The first reading on Q1 GDP was a mixed message . Sure the headline seemed good: the U.S. economy grew at an annualized pace of 2.5 percent in the first quarter, which was up strongly from the fourth quarter’s meager reading of 0.4 percent and better than 2012’s pace of 2.2 percent. But the result was less than the 3 percent annualized pace that economists were expecting. The GDP report was just a warm-up for this week’s “Econo-palooza,” starting with a report on monthly Personal Income and Spending. Considering that consumers did the heavy lifting on the GDP (consumption rose at a 3.2 percent annual pace in Q1), fears over a pullback in spending may have been overblown. Perhaps the increase in payroll taxes was offset by a drop in energy prices, but the GDP report did note that there was 5.3 percent annualized drop in real disposable incomes.
Also this week, there will also be readings on: house prices; manufacturing; car sales; and monthly jobs, the big daddy of them all. After last month’s lousy employment report (just 88,000 jobs were created in March), economists estimate that April will bump up to 160,000 new jobs and that the unemployment rate will remain at 7.6 percent.
In between all of the noise, the Federal Reserve will convene its Open Market Committee meeting. The central bankers have been keeping a close eye on all of the economic indicators, all of which underscore that the U.S. economy remains in a slow-growth mode. How slow? Growth has averaged a so-so 2.1 percent over the past 15 quarters of the current recovery, well-below than the 3.4 and 2.9 percent growth rates of the previous two recoveries (early 1990’s and 2000’s).
With sub-par growth, nearly 12 million Americans out of work and no sign of inflation, the Federal Reserve is not likely to change monetary policy any time soon. That means low short-term interest rates and monthly purchases of $85 billion worth of bonds will continue, probably through 2013 and perhaps into 2014.
And just for fun, earnings season will roll on this week. About half of S&P 500 companies have reported results, with 69 percent of firms topping expectations and 20 percent missed, according to Thomson Reuters. But many of these firms are meeting or beating estimates based on cost cutting – just 42 percent of companies have beaten their revenue forecasts and on average, sales have come in 2 percent below estimates.
Markets: With the beginning of May ahead, should investors “sell in May and go away?” Since 1950, the Dow's average annual gain between November 1 and April 30 is 7.5 percent, versus the 0.3 percent gain between May 1 and October 31, according to the Stock Trader's Almanac. Then again, investors who bought stock on May 1 and held on, reinvesting dividends, had a return of 11.1 percent a year on average, topping the gain of the investors who sold in May and went away. Bottom line: ignore the rhymes and stick to your diversified, balanced portfolio!
- DJIA: 14,712, up 1.1% on week, up 12.3% on year
- S&P 500: 1582, up 1.7% on week, up 11% on year
- NASDAQ: 3279, up 2.3% on week, up 8.6% on year
- June Crude Oil: $93, up 5.4% on week
- June Gold: $1453.60, up 4.2% on week
- AAA Nat'l average price for gallon of regular Gas: $3.50
THE WEEK AHEAD:
8:30 Personal Income and Spending
10:00 March Pending Homes Sales
BP, Pfizer, UBS, NYSE Euronext, US Steel
FOMC Meeting begins
9:00 Case-Schiller Home Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
MasterCard, Merck, Time Warner, CVS Caremark, Clorox, Facebook, Visa, CBS, MetLife
Motor Vehicle Sales
8:15 ADP Private Sector employment
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 FOMC Meeting Announcement
GM, Royal Dutch Shell, Kellogg, AIG, Kraft Foods
7:30 Challenger Job cuts
8:30 Weekly Claims
8:30 International Trade
8:30 Productivity and Costs
8:30 April Employment Report
10:00 Factory Orders
10:00 ISM Non-Manufacturing Index