Eight times per year, the outcome of the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) meeting becomes the focal point for marketparticipants. Four times each year, the Bureau of Economic Analysis’s (BEA) first estimate of gross domestic product (GDP) — the first look at the health of the economy in the prior quarter — dominates the headlines. Similarly, at the start of each month, the Report on Business from the Institute for Supply Management (ISM) and the monthly labor market report from the U.S. Department of Labor are the centerpieces of any trading week. This week (April 27 to May 1, 2015), three of these four events are on the docket, with only the employment report for April 2015 (due out Friday, May 8) missing. So, while this week’s economic events don’t quite measure up to the weeks in which all of the “big four” economic events take place, which last occurred in the last week of July 2014 (see our July 27, 2014, Weekly Economic Commentary, “Midsummer Madness,” for details), other events make the coming week as busy as any “big four” week. This week, another 164 S&P 500 companies are scheduled to report their first quarter 2015 results. Also, key reports on the health of the U.S. economy in April 2015 are due out (vehicle sales, consumer sentiment, inflation expectations, the Dallas and Richmond Fed manufacturing indexes), which will help investors gauge whether the weakness in the economic data in Q1 2015 was temporary, as we expect, or the start of a new trend. Overseas, reports on Q1 2015 GDP in the U.K., Canada, Taiwan, and Spain will be released, and key central bank meetings are scheduled in Japan, Russia, Brazil, Sweden, and Mexico. Brazil may raise rates while the consensus expects both Sweden and Russia to cut rates….
April 21, 2015
Dear Valued Investor,
The beginning of April has kicked off the 2015 baseball season, as well as the release of economic data for first quarter 2015. So far this season, games have shown a nearly record low number of runs. While the start of the season may have disappointed fans of the long ball, we have to keep in mind that the season is very young. What happens in April isn’t always an indication of how the season will go. Similarly, it may be tempting to look at individual pieces of economic data—many of them affected by weather, the West Coast port strike, and the stronger U.S. dollar—and have concerns about the state of the economy.
We prefer to look at the bigger picture and take a longer-term view. Many of us were discouraged by the March jobs report. However, when we consider other indicators, we are encouraged by the overall health of the economy. For example, initial filings for jobless claims remain near the lows of the ongoing economic expansion. In addition, in the 12 months prior to the weather-impacted March report (ending in February 2015), the U.S. economy had created an average of nearly 275,000 jobs per month, exceeding 200,000 in each of those months—the longest streak in 20 years.
It is also encouraging that the Beige Book, the Federal Reserve’s qualitative assessment of economic, business, and banking conditions on Main Street, continues to indicate solid, mid-cycle economic growth. The recent report indicates that the weak economic data in the past few months likely overstated the weakness in the U.S. economy at the start of 2015. That weakness is likely to get plenty of attention in late April, when the initial estimate of first quarter 2015 gross domestic product (GDP) is likely to confirm tepid growth during the quarter.
Looking ahead, it’s important to note that some of the factors that depressed economic activity in the first quarter have already reversed. The weather has improved, the port strike has been settled, and the oil and gas industry has made significant progress adjusting to the new lower oil price environment. As a result, like last year’s second quarter, which sprang back sharply from a weather-driven decline in first quarter GDP, we may see growth rebound in the current quarter. We are already seeing some encouraging signs; for example, housing starts bounced back in March after a sharp weather-driven decline in February.
Just like even the best hitters have an off night, or even an off week, there will always be some economic reports that are less encouraging than others. In today’s 24-hour media world, we have constant access to economic data. It’s important not to get distracted by any individual report that might seem discouraging. Instead, we are keeping our eyes on the bigger picture and larger trends.
As always, if you have questions, I encourage you to contact me.
Michael W. Boone, CFP®, CFA
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted.
This research material has been prepared by LPL Financial.
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Global growth is likely to be a recurring theme for investors this week. The health of the global economy and key regions (U.S., Eurozone, Japan, China, etc.) is likely to get plenty of attention from corporate managements as they discuss Q1 2015 results and provide guidance for the rest of the year. In addition, the International Monetary Fund (IMF) will release the spring 2015 edition of its widely read World Economic Outlook on Tuesday, April 14, 2015, and China will release its Q1 2015 gross domestic product (GDP) that same day. The outlook for global growth is important to investors, as it defines the ultimate pace of activity that creates value for countries, companies, and consumers. As investors begin to digest the S&P 500 earnings reports for the first quarter of 2015 (32 S&P 500 companies will report Q1 2015 results this week, with another 312 set to report in the final two weeks of April 2015), we provide an update on how consensus estimates for economic growth for 2015 and 2016 — in the United States and worldwide — have evolved over the past few years, and in particular, since oil prices peaked in mid-2014.We’ll also take the first look at how global growth is shaping up for 2017….
Words matter. As investors brace for the unofficial start of the S&P 500 earnings reporting season for first quarter 2015. (see this week’s Weekly Market Commentary, “Earning Recesion?” April 6,2015, for detail), the financial media is swirling with words and phrases like “rig count,” “strong dollar,” “port strike,” and even “bad weather.” These earnings season buzzwords come and go, and although these words change with the seasons (remember “deleveraging,” “debt ceiling,” “Europe,” “warm weather,” “drought,” “Super Storm Sandy,” “Obamacare,” etc.), it is earnings — and earnings guidance — that ultimately drive equity prices.