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Perspectives from Above the Noise -- Week of May 29th, 2017

Perspectives from Above the Noise -- Week of May 29th, 2017

May 30, 2017

U.S. stocks edged mostly higher last Friday, with less than a point gain on the S&P 500. But that was enough for the benchmark index to register its seventh consecutive daily gain and finish at a fresh record high, posting its strongest weekly advance since April 28th. The U.S. dollar also capped a weekly gain as a second reading of first quarter GDP showed the economy expanded more than expected (1.2% vs. 0.9%), following an initial 0.7% growth estimate. Crude oil languished lower last week, even after OPEC and Russia agreed to extend their oil supply curb deal by nine months to March 2018.

For the week, the S&P 500 rose +1.47%, the Dow Industrials climbed +1.32% and the MSCI EAFE (developed international) advanced +0.20%.

What We’re Reading

First Quarter Growth Revised Higher -- HousingWire

OPEC Oil Curb Extended -- NASDAQ

Is the Fed Stifling Growth? -- Bloomberg

Chart of the Week: First Quarter GDP Growth Revised Higher

The Commerce Department’s Bureau of Economic Analysis (BEA) has revised the real gross domestic product higher, increasing it to an annual rate of 1.2% for the first quarter of 2017. Originally, the first estimate from the BEA stated that the real GDP increased 0.7% in the first quarter, compared to the fourth quarter’s increase of 2.1%. The chart above shows the changes in GDP over recent years. For the past three quarters, the real GDP has decreased from the quarter before. Looking forward, J.P. Morgan’s view for second quarter 2017 growth has moved down to 2.3% from 2.4% at the end of last week and from close to 4% back in March.

Manufacturing output was solid in April (+1%), but other indicators point to some moderation following the fairly strong start to the year. Auto production schedules signal that the jump in auto output from April may likely reverse in May, and several factory surveys show that the sector cooled off in early May. The weakening in the manufacturing sector does not bode well for inventories, and the second quarter inventory data are off to a weak start. Most strategists had been expecting inventories to add to growth in 2Q following a large inventory correction in the first quarter, but present risks currently indicate that inventories could subtract from growth again this quarter. So, while we have become less optimistic about second quarter GDP growth, we remain confident that the expansion remains on track. According to models by J.P. Morgan, the odds of a recession beginning over the next year currently stand at 23%, which is only modestly above the longer-term historical average.

Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.