We’re nearly halfway through the year already, and to say the least, it’s been an interesting five months. The S&P 500 rallied 2.35% in the first five months of the year, despite its erratic behavior of late.
Day-to-day market action continues to be driven by several different forces, including economic data reports, earnings and sales results, speculation over the next key interest rate hike and, of course, the strong U.S. dollar.
What’s interesting is that all of these forces are tightly intertwined …
U.S. GDP growth in the first quarter slipped to a -0.7% annual pace, which was down from recent estimates for 0.2% growth. A surging trade deficit is having a huge impact on U.S. GDP growth. Exports contracted 7.6% in the first quarter, while imports rose 5.6%.
Obviously, the strong U.S. dollar is the main culprit. However, the west coast port slowdown was also a factor, since exports resurged in April (up 1% to $189.9 billion) after the labor dispute was resolved.
In addition, pretax corporate profits declined 5.9% in the first quarter, marking the largest drop since 2008. This is also a major concern, as it will likely impede business investment and put further downward pressure on overall GDP growth. So, economists are very cautious with their second-quarter GDP estimates and are now expecting an annual rate of 2% or less.
With U.S. GDP growth currently in negative territory and not looking to bounce back any time soon, the “data dependent” Federal Reserve’s hands are tied. The Fed simply cannot raise key interest rates amid all the recent economic uncertainty and negative GDP growth. And the doves are still looking for further improvement in the labor market and 2% annual inflation before even considering an interest rate hike. As a result, I look for interest rates to remain near zero for the foreseeable future.
Now, there is no doubt that the negative first-quarter GDP report was shocking, and anemic second-quarter estimates have the Fed, economists and many investors worried. However, amid all this uncertainty, an investor’s best defense remains a strong offense.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
