GDP 1st Quarter Growth Surprises on the Upside04-30-2019 |
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 04/26/19. Rates and Economic Calendar Data from Bloomberg as of 04/26/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets produced mixed results for the week. In the U.S., the S&P 500 Index pressed ahead to a level of 2,940, representing a gain of 1.21%, while the Russell Midcap Index gained 1.07% for the week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, increased 1.67%. On the international equities front, developed markets moved 0.15% lower, while emerging markets followed suit and fell 1.30%. Finally, the 10-year U.S. Treasury yield finished the week at 2.51%.
First quarter GDP numbers in the U.S. are now in and higher than many expected. In fact, year over year GDP growth clocked in at 3.2%, well above the 2.3% estimate. In our view, these results provide credence to the belief that the consumer is still confident and spending. For the first quarter, consumer spending itself rose above forecast – albeit slightly – by 1.2% and topped consensus estimates for the month of March as well with a growth rate of 0.9% over the previous month. These results are meaningful given that consumer spending accounts for approximately 70% of GDP. Also consider that nearly 80% of S&P 500 companies that have reported Q1 earnings thus far have beaten estimates and roughly 50% have reported positive revenue surprises. In addition, according to CNBC’s recent All-America Economic Survey, half of all Americans believe the economy is in either excellent or good shape.
With that said, we still believe these results are consistent with the “Slowing but Growing” theme that we’ve discussed in previous commentaries. While the pace of economic growth and earnings growth may slow from the torrid pace that they set in 2018, we believe that they will continue to grow and this level of moderate growth, coupled with a more dovish leaning Fed, should be constructive for additional, potential growth for select stocks ahead.
Diversification, however, will be critical as certain asset classes, geographies and sectors are likely to perform better than others and the days of heightened volatility are certainly not behind us. As a result, we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios. If you would like to learn more about how we are helping clients invest dynamically and consistently with their own goals, time-frame and tolerance for risk, please do not hesitate to speak with your Hennion & Walsh Financial Adviser.
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MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
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LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
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DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.