The data may not taste great but do check under the lid

Apr 25, 202418:02 UTC

DJI

SPX

IXIC

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Key points:

Main U.S. indexes pare losses but still red, Dow leads losses
Comm Svcs weakest S&P 500 sector; Materials leads gainers
Dollar dips; crude edges up; gold, bitcoin gain
U.S. 10-Year Treasury yield rises to ~4.70%

THE DATA MAY NOT TASTE GREAT BUT DO CHECK UNDER THE LID

Wall Street's major indexes went a deep shade of red on Thursday as a data combination of slower than expected growth and higher than expected prices didn't taste great to investors with an appetite for easing prices paired with a solid economy.

But shares have pared losses and some strategists picked out more positive ingredients when they examined the pot.

Jack Ablin, chief investment officer at Cresset says he is not as negative as the consensus implied by the market's moves.

"The US, powered by the consumer, still shows underlying strength. While the imbedded inflation reading was disappointing, we think the market’s stagflation worries are overblown," Ablin wrote.

He noted that net exports, pulled 0.9% from Q1 growth, and accounted for the entire shortfall between the 1.6% expansion and consensus estimates.

And he says that this "belies underlying economic strength, as healthy consumers, armed with a strong dollar, buddied up to boost the US trade deficit, drawing away from domestic growth."

As per Ablin, it was the first quarter in two years that net exports dragged down headline growth. And he said that final sales to domestic purchasers, which excludes volatile inventories and trade, grew 2.8%, "topping the overall GDP rate and underscoring solid underlying demand."

Meanwhile the take from UBS Global Wealth Management's senior U.S. economist Brian Rose is that "stronger consumer demand for services is creating inflationary pressure" which isn't great news for the Fed's efforts. But Rose is sticking to a base case "that inflation will slow in the months ahead, allowing the Fed to start trimming rates in September.”

Another report from GlobalData.TS Lombard cheerfully implored readers to forget the headline numbers as "the data conveyed an economy on the upswing."

Steven Blitz, the company's chief U.S. economist points to a growth pick up in "sectors that reflect improved confidence in the economy moving forward." And he says the down-swing in inventory and government spending are "not critical determinants of the economy moving ahead."

In a big and diverse economy, he points out that not every sector or region, grows at the same pace. "Capital spending is what will drive growth forward in the quarters ahead and this is on the upswing," he said. That more of the spending is on imports than before, reflects a "too strong dollar" he says.

So Blitz sees the U.S. Federal Reserve staying put "as the probability of any cuts this year continues to ebb away."

But, he argues that "in the end, this is a real growth story, a good thing."

Most recently, Wall Street's main indexes were close to session highs. The Dow DJI is recently down about 0.9% after falling closer to 2% earlier. The S&P 500 SPX is off around 0.4% after dropping more than 1% earlier, while the Nasdaq IXIC is down about 0.7% after sinking more than 2% earlier.

(Sinéad Carew)

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