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Losing Skid is Deepest Since January as Economy Paused

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March 27, 2015

Five days of red? U.S. stock futures maintained negative ground and the dollar turned lower against the euro as the government had no revision to a 2.2% U.S. Q4 GDP reading—less than half the 5% clip in Q3. Bonds gained in response to this early report, pushing the benchmark 10-year Treasury yield down to 1.972%. The S&P 500 (SPX) is down some 2.5% so far this week, a weekly drop not seen since January. What’s most interesting is that this pullback, unlike January’s, was not triggered by particularly awful news. So, what gives? Notably, the CBOE Volatility Index (VIX) has held above 16, which tells me that so far, there’s not widespread “fear” in the “fear gauge.”

FIGURE 1: HOLDING THE LINE? S&P 500 support at 2051 remains a closely watched area as stocks drop. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

GDP Unchanged, But Consumers Stronger. The U.S. economy grew 2.2% in the final three months of 2014, unchanged from the government's prior estimate. Exports and consumer spending, especially on health care, were revised to show a stronger increase, but that was offset by a reduction in how much companies spent to build up inventories, the Commerce Department said. Consumer spending was raised to 4.4% from an earlier reported 4.2%, marking the largest increase since 2006. Exports also rose 4.5% instead of 3.2%. For all of 2014, U.S. gross domestic product grew at a revised 2.4% rate, compared to 2.2% GDP in 2013 and 2.3% in 2012. A separate report on consumer sentiment is due out later today.

On the Radar. Fed Chair Janet Yellen speaks at the Federal Reserve Bank of San Francisco Conference on “The New Normal for Monetary Policy” just before the closing bell today. It’s Yellen’s first public speech after the central bank last week dropped the word “patient” from its interest-rate policy statement, but Yellen said then the Fed is in no hurry to raise rates. Her speech starts at 3:45 p.m. ET.

Coming Next Week. A sprinkling of factory data is on tap next week. Home sales data will also hit. No surprise to me if we start to see rising home sales numbers as fence-sitters jump. Yes, the Fed has stuck with a go-slow approach to raising interest rates but the direction still stands, and that's up. It’s likely that anticipation for higher mortgage rates could induce a flurry of activity. Here’s an interesting calendar twist. The government will be open of course on Good Friday, April 3, that means business as usual for the first-Friday jobs report release. The thing is, the stock market is closed and the bond market has a recommended early close that day. In other words, the market’s reaction to the jobs picture (hot or cold) will be muted at best and likely delayed. Now, this could call for increased attention on how select open global markets react and how electronic stock index futures react as they’ll have dibs out of the gate.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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