Will April showers bring May flowers? Right now it is too soon to tell. One thing is sure – the rough winter weather definitely put a damper on economic activity here in the US.
Initial GDP (gross domestic product) for the 1st quarter of 2015 was announced on 4/29/15 at 0.2%, well below the consensus estimate of 1.0% (Commerce Dept).
The major things impacting economic growth were the weather and lower energy prices. While lower gas prices result in savings to consumers, during the 1st quarter more consumers actually saved that money rather than spend it, as consumers boosted their savings to $727.8 billion from $603.4 billion in the 4th quarter of 2014 (CNBC). The weather hurt construction as spending on nonresidential structures, which includes oil exploration and drilling, tumbled at a 23.1 percent rate. That was the fastest pace of decline in four years and marked the first contraction since the 1st quarter of 2013. (CNBC) Most economists expect economic activity and GDP to pick up later this year, repeating the trend we have seen over the last couple of years. I agree with that outlook.
On the investment front, the financial markets seemed to discount the slower growth in the first quarter, as the equity markets ended the month up 0.85% (basis S&P 500) despite a selloff on 4/30/15. I think this is largely due to better than expected corporate earnings for 1Q2015. “So far 66.5% of the companies that have reported have topped earnings expectations, while only 52.3% have bested revenue estimates”. (Raymond James 4/27/15)
Oil prices have stabilized and actually rebounded back to the $55 range for West Texas Intermediate (WTI), up from ~$43 in March 2015. European economies and equities have also rebounded due to quantitative easing from the European Central Bank, a weaker currency (versus US Dollar) and lower oil prices.
As you will see from the chart below, over the last 12 months there have been several dips in the S&P 500 but each has been met with a rebound. Overall, the trend is a slow grind higher. I have been using these dips to adjust asset allocations.
Therefore, I expect economic activity, both domestically and internationally, to improve over the balance of the year. I anticipate the Federal Reserve will begin raising interest rates in the 3rd or 4th quarter of the year. My target for the S&P 500 by year end is in the range of 2,150 – 2,175. I invest accordingly.
May Calendar of Events (comments and additions for future months are always welcome)
- May is Mental Health Awareness Month. Let’s all try to be more understanding of folks dealing with mental health issues.
May 5th National Teachers Day – started by Eleanor Roosevelt back in 1953. Say thanks to a teacher.
May 10th Mother’s Day
May 23rd My daughter Caryn’s birthday
May 25th Memorial Day. Say thanks to a soldier.
Last month I was able to be with my daughters, Satya and Caryn, on Satya’s birthday when they ran in the “Color Run – The Happiest 5K on the Planet”. It was amazing to see thousands of people – all ages, sizes, shapes, and nationalities – come together for a fun, healthy experience. They have “color” stations along the run where volunteers shower the runners in colors. You should check one out – http://thecolorrun.com/
Here is a picture after the race. That’s Satya on far right and Caryn is wearing the bandana.
Source: Raymond James & Associates, Yahoo Finance, Bespoke Investment Group
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