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Fed Speakers, Final Q4 GDP Reading Take Center Stage As End of Quarter Nears

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March 30, 2017

(Thursday Market Open) The final word is in on Q4 gross domestic product (GDP), and it’s a bit better than expected. That and a host of Fed speakers dominate the scene as the week and quarter rush toward a close.

GDP rose 2.1% in Q4, the government said in its third and final estimate early Thursday, compared with Wall Street analysts’ consensus expectations 2% and the previous government estimate of 1.9%. By now, a lot of people are starting to look ahead and predict Q1 GDP growth. At the moment it looks like it might be pretty weak, with the Atlanta Fed’s GDPNow indicator at just 1%. However, some analysts predict 1.5% to 2% growth in Q1 and expect stronger growth in Q2 and for the full year. 

While the Dow Jones Industrial Average ($DJI) fell in nine of the last 10 sessions, other indices eked out some gains in recent days. Both the S&P 500 (SPX) and the Nasdaq (COMP) rose slightly Wednesday, and pre-market trading indicated a possible flat open today. 

Energy is enjoying a bit of a revival, rising more than 1% Wednesday as oil prices reached three-week highs on talk that OPEC might extend its production cuts. Year-to-date, however, energy remains the weakest sector, down nearly 9%. U.S. crude supplies rose a smidgen last week, and remain at all-time peak levels.

Fed speakers continue to make headlines, though they don’t appear to be influencing the markets too much. Judging from media reports of their remarks, there’s some diversity of opinion about how many rate hikes might be necessary this year. Three more Fed speakers are on tap today.

It’s interesting to hear what Fed officials have to say. But so many are out there speaking now that it’s becoming almost like background noise, and we’re still a long way from the next meeting in May. Futures prices anticipate just a 4% chance of a hike by May but a better than 50% chance by June.

On the earnings side, LuLulemon (LULU) delivered a very poor earnings report after the close Wednesday along with a poor outlook going forward. The stock was down more than 18% after hours and continues to see weakness in pre-market trading.

The turn-around in the SPX over the last two days accompanied a big drop in volatility. VIX fell back well below 11.6 by Thursday, down sharply from highs above 14 earlier in the week and perhaps a sign that some of the nerves triggered by the health care bill’s failure may be calming a bit.

Remember that with the quarter almost over, there’s liable to be some “window dressing” over the next day or two as fund managers traditionally use these last days of the quarter to square positions. Volume could be higher than usual as the quarter draws to a close.

Crude Oil

FIGURE 1: TURNAROUND ARTIST.

Crude oil futures, tracked here through Wednesday on the TD Ameritrade thinkorswim® platform, once again seem poised to test $50 a barrel, a price not seen for a front-month contract since March 10. Source: CME Group. For illustrative purposes only. Past performance does not guarantee future results.

Tech Talk: Besides Tuesday’s strong consumer confidence data, there’s also perhaps a technical component to the market’s slight recovery this week. The SPX fell below a key support point at 2350 last week, and then dropped beneath the 50-day moving average to under 2330 at one point Monday. The SPX’s turn-around late Monday to close back above 2330 helped set a stronger technical tone, and that may have been enhanced by Tuesday and Wednesday’s closes back above 2350. For now, 2350 remains key support.

House Music: Speaking of consumer confidence, it may be getting reflected in the housing market. Two important measures of housing came out this week and both looked strong. The Case-Shiller home price index showed the biggest price gains in two years, and pending home sales rose 5.5% in February, way above expectations for about 2% growth. Mortgage rates remain high relative to recent years, but apparently that’s not hurting homebuyers too much. Climbing home prices can sometimes be seen as proxy of consumer confidence.

Price Check:  It’s the end of the month, and time once again for the latest Personal Consumption Expenditure (PCE) price index. The report, which the Fed reportedly watches closely for signs of inflation, is due at 8:30 a.m. ET Friday, and — along with Chicago PMI — constitutes the last important economic data released this quarter. The January reading on PCE prices rose 0.4%, with core prices excluding food and energy rising 0.3%, but core PCE prices were up just 1.7% year over year, below the Fed’s 2% inflation threshold. The February PCE price index is expected to rise just 0.1%, according to a consensus of Wall Street analysts reported by Briefing.com. But personal income is seen rising a pretty strong 0.4% and personal spending is projected to rise 0.2%.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

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

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