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Few Envy Fed: GDP Sputter Only Complicates Rate Timing

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April 29, 2015

“Caution” has been the stock market’s buzz word this week and today could be no different ahead of the afternoon Fed statement release. The central bank kicked off its two-day meeting on Tuesday and will presumably shed a little light on its thinking in a 2 p.m. Eastern release. Investors are looking for clues to the timing for presumed interest rate tightening.

Some industry analysts expect Yellen and crew to remain intentionally vague, however, as the Fed likely wants to keep its options open. In fact, a sharp slowdown in U.S. economic growth to start the year, just released in the morning’s Q1 GDP report, is only the latest in a string of soggy reports that some on Wall Street believe takes a June rate hike off the table. Transitory factors or real evidence of economic letdown? Let’s see what the Fed has to say. Now, the bond market itself, our proxy for market interest rates, has been declining in price, rising in yield over the past few sessions as participants position for higher rates, whenever that may be. Let’s keep our eyes on bond yields, too.

FIGURE 1: CHOPPING NEAR THAT RECORD.

Even S&P 500 (SPX) bulls have shown reluctance to test that newly minted record high ahead the Federal Reserve release.  Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Near Stall. Gross domestic product (GDP), the broadest measure of the economy, rose in the first three months of the year. Barely. The U.S. grew at a meager 0.2% annual pace in the first three months of 2015, yes due to severe weather, a major port dispute and a soaring dollar that curbed American exports. But there’s more. Consumer spending, the main engine of growth, slowed sharply to 1.9%, below the average 2.3% increase since the recovery began in mid-2009. Economists polled by MarketWatch had expected, on average, for growth to slow to 1.1% from the 2.2% clip in Q4.

Quick-Trigger Twitter. Not sure what’s the bigger Twitter (TWTR) news, its disappointing results or the reality of what looks like a major blow to its reputation in, yes, fewer than 140 characters. Twitter's Q1 profit beat Wall Street's expectations but sales fell short of estimates. But according to CNBC and other news outlets, the TWTR release hit prematurely when Selerity posted four tweets after 3 p.m. Eastern Tuesday with what it said were TWTR Q1 earnings, revenue, and user figures. Twitter issued a press release about 25 minutes later confirming Selerity's figures. Trading was briefly halted but TWTR closed Tuesday trading down 18% and is sharply lower early today.

GoPro’s Solid Quarter. Not all tech shares were suffering with Twitter. Action camera maker GoPro (GPRO) said Q1profit rose to $16.8 million, or 11 cents a share, from $8.5 million, or 8 cents a share, in the year-earlier period. Excluding one-time items, GoPro earned 24 cents a share, above the Wall Street estimate of 18 cents a share. Revenue totaled $363.1 million.

Good trading,
JJ
@TDAJJKinahan

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