It was right down the middle for the Fed today, as it left rates unchanged pretty much as most investors had expected. A weak inflation picture appeared to help shape the Fed’s decision.
Figure 1: Big Reversal: This 9-month chart, going back to early August, shows how 10-year yields (candlestick) have reversed their upward path even as the S&P 500 Index (purple line) bottomed out in December and rose sharply as the Fed stepped back from rate hikes. Data Sources: Cboe, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Beyond GDP, Some Softness: There’s been a lot of chirping about last Friday’s better-than-expected Q1 gross domestic product (GDP) read of 3.2%, but since then the economic data hasn’t had as much pizzazz. Going into today’s Fed meeting conclusion, both March construction spending and the April ISM Manufacturing numbers came in below analysts’ expectations. Mortgage applications fell pretty sharply last week, and the personal consumption expenditure (PCE) price index for March also failed to shine. Chicago PMI for April looked particularly flat at 52.6, the lowest level since January 2017. As Briefing.com noted, most of the Chicago PMI barometers have fallen below their 12-month averages, “which suggests greater business uncertainty among firms.” So when the Fed potentially is asked to respond at today’s press conference to that solid GDP figure, keep in mind that things haven’t all been so hot lately, meaning the Fed’s warnings about economic slowness haven’t necessarily been off base.
Pondering Payrolls: Friday brings what’s arguably the most important data point of the month when April payrolls bow at 8:30 a.m. ET. Looking back at March, 196,000 jobs were created, about 20,000 above expectations, and way above the growth of 33,000 in February. Within those numbers, job growth in manufacturing and construction stagnated, while we saw stronger gains in health care and business and professional services. Average hourly wages grew 3.2% year-over-year.
So what are analysts looking for on Friday? Job growth is expected to be around 200,000, according to a Briefing.com consensus, with unemployment holding steady at 3.8% and hourly pay up 0.3% from the month before. That would be a bigger rise in wages than the 0.1% monthly increase seen in March. Investors might want to keep a close eye on construction and manufacturing jobs to see if they popped back in April after some weak months.
Infrastructure Alert: After a more than two-year wait, it looks like we’re seeing some traction on a Washington plan to put money into infrastructure spending. Democrats and President Trump appear to be planning to spend as much as $2 trillion on highways, bridges, railroad, and broadband, The New York Times reported this week. While there wasn’t really much of a market reaction, we’ve said here before that infrastructure spending could be a possible boost to companies in the Industrial, Materials, and Tech sectors, with Tech potentially benefiting if part of the plan includes broadband. Transport companies like shippers and railroads also come to mind as conceivably getting a boost if modernization of roads and railroads comes into play, and it could also help the Walmarts (WMT) and Amazon’s (AMZN) of the world that rely on shippers to get their products quickly to customers. Some pundits are already writing this one off as unlikely, so don’t necessarily hold your breath. However, with a big election year ahead, it’s possible both parties might see benefits.
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