Stocks Drift Lower on Weak Growth, Fed Statement

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Investors were braced for excitement on Wednesday ahead of both the initial estimate of first quarter GDP growth and a policy announcement from the Federal Reserve. But both ended up coming in largely as expected, keeping volatility subdued.

In the end, the Dow Jones Industrial Average and the S&P 500 lost 0.4%, the Nasdaq lost 0.6%, and the Russell 2000 lost 1%.

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The economy expanded just 0.2% in the first quarter after a 2.2% increase in the fourth quarter of 2014, well below the 1% consensus estimate (but in line with the frequently cited Atlanta Fed’s real-time estimate).

Snow, the West Coast port shutdown and the drag from the strong dollar were all cited as headwinds that should fade. The latter was responsible for a surprisingly strong drop in net exports, which subtracted 1.3% from the GDP number. Lower energy and commodity prices were reflected in the 3.4% contraction in business investments.

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The Fed responded by downgrading its assessment of the economy, promising to hold off on rate hikes until the job market tightens further and inflation starts moving towards its 2% target. A June rate hike appears to be off the table, focusing attention on September as the most likely liftoff date.

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A 2.6% gain in crude oil, to close at $58.56 a barrel, helped lift energy stocks 0.7% for the day’s best performance. Better inventory data showing a small draw from Cushing, Oklahoma, where futures prices are set. That lifted the Market Vectors Oil Services ETF (NYSEARCA:OIH) recommended to Edge subscribers on April 6 to a gain of nearly 8%. Action camera maker GoPro Inc (NASDAQ:GPRO) gained 12.6% on better first-quarter results helped by strong demand overseas.

While gold and silver futures slid in the wake of the Fed announcement, precious metals stocks continue to demonstrate some relative strength here. The Market Vectors Gold Miners ETF (NYSEARCA:GDX) punched above its uptrend channel today to return to levels not seen since early March, gaining 0.9%. That helped Freeport McMoRan Inc (NYSE:FCX) gain 0.9% to return to levels not seen since January — lifting the FCX May $20 calls recommended to Edge Pro subscribers on April 23 to a gain of nearly 240%.

Looking ahead, Thursday will see an update on household income and spending via the personal income and outlays report, while Friday will featuring a manufacturing activity update via the ISM report. Solid readings on both will be needed to suggest the economy is bouncing back in the second quarter after hitting the skids at the start of the year.

Jesse Edgerton at JPMorgan Chase & Co (NYSE:JPM) was quick to dismiss some of the Q1 disappointment was possibly related to poor seasonality that’s not being compensated for in the government’s statistical adjustments. He notes that over the last 20 years, GDP growth in the first quarter has averaged 1.6% lower than in the other quarters.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/stocks-drift-lower-on-weak-growth-fed-statement/.

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