Weak Q1 GDP report fails to hold down stock prices

The stock market paid little mind to this morning’s weaker-than-expected Q1 GDP report and went on to higher prices to end the day and the week. NASDAQ was the best performer among the major averages, gaining 2.3% for the week, including Friday’s 0.6% increase. The catalyst Friday wasn’t Apple but Amazon, which soared 16% to finish at $227 a share, its highest close since last October. After the market closed Thursday, the internet retailer reported a 34% surge in revenue in the first quarter; investors appeared less interested in Amazon’s 35% drop in net income. For its part, Apple fell 0.8% on Friday but ended the week up 5% at $603 a share. Both the Dow and the S&P rose 0.2% on Friday, bringing their weekly gains to 1.5% and 1.8%, respectively. The Dow is now off just 0.3% from this year’s high, while the S&P 500 has returned above the 1400 level, where it is up 11.6% for the year to date.

The Commerce Department’s advance estimate for first-quarter GDP growth came in at an annualized rate of 2.2%, down from the fourth quarter’s 3.0% rate and below Street estimates that centered around 2.5%. Commerce said the weakening was mainly due to a smaller contribution from private inventory investment and a downturn in nonresidential fixed investment. Inventory build-up accounted for only about a quarter of GDP’s 2.2% gain in Q1 compared to between half and two-thirds of Q4’s 3.0% growth. The government sector continued to detract from economic growth, lopping off 0.6% of Q1 GDP. These weak areas of the economy were partly offset by increases in exports and personal spending, which jumped 2.9%, up from 2.1% in the previous quarter.

Want a positive spin on Q1 economic growth? The 1.6% rise in real final sales, which is GDP less the change in private inventories, was an improvement on Q4’s 1.1% increase. But let’s face it: in nominal terms, the U.S. economy is growing at about a 4% annual rate – roughly 2% real growth and 2% inflation. While it’s not up to the nation’s potential, it is better than Europe’s little or no growth. Also on Friday, the University of Michigan released its consumer sentiment index for April, which rose marginally to 76.4 from 75.7 previously, ahead of the consensus estimate of 75.8.

European stock markets closed higher on Friday and for the week after huge losses on Monday. The Italian MIB index was one of the best performers, gaining 1.9% on Friday and 2.6% for the week, followed by the French CAC index, which jumped 1.1% on Friday, ending the week with a 2.4% gain. Even Spanish stocks finished the week higher, with the IBEX barometer gaining 1.7% on Friday to finish the week higher by 1.5%. Spanish Economy Minister Luis de Guindos Friday disavowed the need for a bailout.  But later in the day Standard & Poor’s cut the country’s credit rating by two grades, to BBB+, just three levels above a junk rating. The broad-based Stoxx Europe 600 rose 0.8% on Friday to close the week 0.5% higher, while the German DAX index rose 0.9%, bringing its gain for the week to 0.8%. The euro was up slightly against the dollar, trading late at $1.3241.

Treasury bond prices were largely unchanged Friday. The yield on the 10-year note ended the day at 1.93%, down four basis points on the week, while the 30-year bond traded late at a 3.12% yield, down one basis point from where it began the week. Oil prices were marginally higher today.

Reports/dates/facts/links worth paying attention to over the next week:

  1. April 30: Personal income and spending for March; Chicago Institute of Supply Management survey for March.
  2. May 1: Construction spending for March; motor vehicle sales for April; ISM manufacturing composite index for April.
  3. May 2: ADP national employment report for April; factory orders for March.
  4. May 3: Unemployment claims; productivity for Q1; ISM non-manufacturing survey for April.
  5. May 4: Employment situation for April.

Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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