The Market Bull – July 26, 2019
The major averages closed with modest gains on better than expected data. Since Monday the S&P 500 is up 1.46%, the NASDAQ gained 2.06%.
Advance 2nd Quarter Gross Domestic Product or GDP increased a better than expected 2.1%. Personal Consumption and Government were big drivers, the remaining categories were all negative. Fixed Residential Investment fell for a 6th consecutive month, down .06%, this category tends to lead the economy into and out of recessions. Real disposable income growth slowed to 2.5% from a revised 4.4%. The saving rate fell to 8.1%, from a revised 8.5%. With uncertainty from the trade war and tariffs weighing on the economy, combined with fading debt funded tax cut stimulus, finding a driver for growth going forward takes on significant importance. Annual revisions were also applied to the series, notable highlights include 2017 GDP revised up .2% to 2.4%. Savings from 2017 onward increased to 7.5%+ and over 8% in 2019. Income was also revised significantly higher. Compliments of rapidly increasing debt and other factors, color me skeptical on these last 2 items.
Other notable annual revisions to this series include a sharp reduction in corporate operating profits, removing all of the growth over the last 5-years. According to the preliminary Q2 GDP results, implied operating profits for the period totaled $1,900 billion, down 5% from Q1, which would represent the third consecutive quarterly decline, and a figure over 7% lower than a year ago. In dollar terms 2017 profits were lowered by $93 billion, or 4.4%, and profits for 2018 were reduced by a whopping $188 billion or 8.3%.
Another item that got revised away today was Trump’s “Best Economy Ever” after 2018 GDP got cut from 3% to a still decent 2.5%, on a significant downshift in consumer spending. 2017 the first year of his presidency was revised slightly higher, to 2.4% from an earlier estimate of 2.2%. Also of note, the 2.3% average annual economic growth of the current decade-long expansion compares unfavorably with the 2.9% seen during the previous expansion from late 2001 to 2007, and 3.6% in the 10-year expansion that ended in early 2001. This last bit implies that deficits and debt do indeed matter as economic theory holds that debt crowds out economic growth.
Standard and Poors 500 Index closed at: 3,025.86 up 22.19
NASDAQ finished the day: 8,330.21 up 91.67
Gold ended trading at: $1,418.50 up $3.80