Markets were higher despite a disappointing revision to first quarter U.S. GDP that showed the economy shrank by 1% during the quarter. The S&P 500 made an all-time closing high for the third time in four trading days, and also took out its prior intraday record high.
First, the scoreboard:
- Dow: 16,698.7 (+65.5, +0.3%)
- S&P 500: 1,920.0 (+10.2, +0.5%)
- Nasdaq: 4,247.9 (+22.8, 0.5%)
Top stories of the day:
- The U.S. Bureau of Economic Analysis’ second estimate for first quarter GDP was revised to a 1.0% decline from the first reading of 0.1% expansion. Capital Economics’ Paul Ashworth said, “first-quarter contraction was quite obviously due to the unusually severe winter.” Ashworth added, “[T]he incoming monthly data already point to a marked turnaround in the second quarter. For those worried about a recession, it’s worth remembering that employment increased by nearly 300,000 in April and jobless claims dropped to 300,000 last week. Those numbers point to a recovery gathering some real momentum at last. We still expect second-quarter GDP growth to come in close to 3.5%.”
- Weekly initial jobless claims fell to 300,000 from 327,000 a week ago, which was also lower than the 318,000 expected by economists. In a note to investors, Pantheon Macro’s Ian Shepherdson said, “Last week’s claims were revised up a trivial 1K. This report is more important than the GDP numbers, in our view, because it strongly supports the idea that labour market conditions are improving markedly, despite weak headline growth during the winter. The eight-week moving average – a better indicator of the trend than the four-week average – has now dipped to just 316K, the lowest level since August 2007, and down sharply from 340K at the turn of this year. Over time, every 10K drop in claims is consistent with payroll growth accelerating by about 25K, so the drop in claims, if sustained, ought to be accompanied by payroll growth closer to 250K than to last year’s average, 194K. That’s not compatible with 2.44% 10-year yields.”
- April pending home sales grew 0.4% month-over-month, short of the 1% rise that had been expected. Against the prior year, April sales fell 9.4%, which was worse than the 8.7% decline expected by economists. Following the report, Barclays said, “Pending home sales in the US rose 0.4% m/m in April, softer than we (+2.0%) and consensus (+1.0%) were expecting. Nevertheless, pending home sales are now up for two consecutive months after declining the previous eight months… The stabilisation and modest rise in pending home sales in March and April suggests that existing home sales are likely to move modestly higher in the coming months. This is consistent with trends in housing starts, building permits, NAHB sentiment, and new home sales that show the housing sector gradually gaining momentum at the end of Q1. Altogether, the bulk of housing data points to a slow recovery in the sector following the successive shocks of higher mortgage rates and worsening affordability last year and adverse weather this year.”
- The U.S. 10-year Treasury note continued to trade around its low of the year, falling as low as 2.40%. Brean Capital’s Peter Tchir circulated a report examining some of the theories as to why bonds have been in rally mode. Among the theories Tchir addresses are a short squeeze in treasuries, too many investors remaining underweight bonds, and the ECB, which is expected to cut rates at its June 5th meeting.
- In corporate news, Tyson Foods offered $US50 per share for Hillshire Brands, topping the $US45 per share offer Pilgrim’s Pride made earlier this week.
- Satellite TV provider DISH announced it will be accepting Bitcoin from customers, making it the largest company to accept the cryptocurrency.
- Don’t Miss: Here’s The Real Reason Why Americans Aren’t Buying Homes »
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