The stock market's progress towards a new record hinges on an important measurement of economic growth

If the stock market needs a new catalyst after a timber rise to near-end signs, there is one in the offen.

An initial reading of US economic performance in the first three months of 2019 is set to be released next Friday. First-quarter gross domestic product – the official health scorecard – comes at a sensitive time for Wall Street investors, who have pushed equity values ​​higher, shaken by weak domestic growth and last month's yield curve inversion – a reliable recession

on this the stock indices have driven to their highest levels in six months. Bjørn argues that it is only a matter of time before an economic downturn means that much of the rest of the world takes hold of the United States while bullish investors see few obstacles to further gains if the federal bank keeps its interest rate increases on hold for close quarters.

"the soft-landing scenario plays out for the global economy and it is difficult at this point to see some risks on the horizon that are large enough to pull the US into a recession," wrote Torsten Sløk, chief economist at Deutsche Bank, in a Thursday concert.

"This backdrop without recession and steady growth and low inflation and low prices is bullish for risky assets, especially stocks," he says.

Nicholas Colas, co-founder of the market research firm DataTrek, said that sufficient economic momentum to support earnings growth will be the key:

"American stocks clarify this prospect as long as there is enough economic growth to deliver earnings growth in 2H 201[ads1]9," Colas wrote in a Friday research note, referring to the market's belief that it won "It's not a speed increase from the Fed over several months.

That everyone makes Friday's GDP printing uniquely interesting.

If Friday reveals a first quarter GDP number that would put the US on track to hit 2% to 2.5% growth this year, it could shortly shorten short-term forecasts for recession. Analysts asked by MarketWatch expects a more moderate growth rate of 1.5% in the first three months of 2019, but 2.3% for the whole year.

So far, the latest economic data has supported the customs mission.

JPMorgan Chase & Co.'s proprietary purchasing manager index rose to 52.79 at the end of March, from 52.12 in January, albeit after moving from February 2018 high to 54.78. Any reading over 50 indicates that global economic activity is picking up.

The more startling data, in part, is reflected in other GDP figures.

Atlanta Fed GDPNow first quarter estimate, which incorporates recent economic data to spit out relatively real-time growth forecasts, has jumped to 2.8% on April 19 from an incredibly low 0.3% on March 1.

See : Retail's biggest sales gain of 1 ½ years, point to the restorative economy

Global Growth Grinder

Fear of a weaker global economy is not soon gone. The International Monetary Fund's spring meeting in Washington saw the international lender cut its global growth forecast to 3.3% in 2019, the third time in six months.

The People's Bank of China also said that the quarterly policy update would regain the use of monetary stimulus in the future to avoid overburdening the economy and to prevent further rise in credit after injecting money into the economic system earlier in year.

With high debt levels, analysts say Beijing may have less space to loosen the credit spigot this time, a potential disappointment for an export-dependent eurozone.

Rome to the rally?

But it is not assured that a healthy quarterly GDP can give a new run for the Dow Jones Industrial Average record

DJIA, + 0.42%

S & P 500 indexes

SPX, + 0.16%

and Nasdaq Composite Index

COMP, + 0.02%

all within shouting of all-time closed heights.

S & P 500 is now less than 1% away from its Sept. 20-mail.

LPL analysts said the stock market has already priced in 2 to 2.5% growth for the full year 2019.

Read : Global Growth and Stocks Can Be Lifted, UBS [19659015] Yield curve inversion

The bond market investors are beginning to recognize the so-called green shootings in the US and global economy, having disagreed with the stock market's upward path and its implied optimism over the US economy's prospects earlier this year.

Just a month ago, the bond market had priced in a declining fall that could lead the Fed to begin interest rate reductions, effectively reversing the interest rate normalization cycle. The setback risk was further drawn in March after the Fed's monetary policy meeting, where it suggested that no interest rate increases were expected in 2019, a further turn from the December forecasts for two will increase this year.

It triggered a slide in long-term bond yields, and a rally in debt prices, and pushed ten-year government bond yields

TMUBMUSD10Y, + 0.00%

under 3 month bill

TMUBMUSD03M, + 0.00%

22. March one of the most sought-after measures of the slope of the yield curve because the inversion of the spread has preceded all nine setbacks since 1955. Bond prices, conversely, move to give.

Since then, the 10-year return has jumped back to 2.56%, from Thursday (bond and stock markets closed in line with good Friday), more than 20 base points from the March downturn, and the steep curve along 3 -months / 10-year spread. Falling bond yields can sometimes reflect concerns about shedding economic expansion and reduced fear of higher inflation, while rising bond yields reflect expectations of a rise in economic activity.

"This revolution of the basket was driven by investors being reassured by the US economy as March data – that is, the first undistorted month since November – has been solid," wrote Hans Mikkelsen, head of US investment grade Credit Strategy at Bank of America Merrill Lynch.

State Week

Approximately 86% of fund managers in the April issue of the Bank of America Merrill Lynch Global Fund Consultant Survey said they did not look at the ROI in

Check Out : Here's the signs of the worst behind us in global economic turmoil

Some 150 S & P 500 companies will report next week, including 12 components in Dow. These include Verizon Communications Inc .

VZ, + 0.45% Procter & Gamble Co .

PG, + 0.19%

and Coca-Cola Co .

+ 0.42%

So far, 15% of the companies in the S & P 500 have already reported the results in the quarter, and 78% of companies report better than expected earnings.

This is often reflected in analysts' expectations for the first quarter to show the first general earnings decline of three years.

Provides critical information for the US trading day. Subscribe to MarketWatch's free need to know newsletters. Register here.

Source link

Back to top button