In April, the Dow Jones Industrial Average dropped 0.11%, the S&P 500 Index lost 0.36%, and the NASDAQ Composite Index fell 2.83%.
In the first quarter of 2016, US GDP growth came in at an annualized rate of 0.5%. It is the slowest quarter of growth in the last two years.
A US economy in search of a lift
Sluggish
Historically, in my opinion, the first quarter can be a soft one. Still, there are certain segments of the economy which are in solid shape, like housing, autos, banking, commercial real estate, and healthcare in my view.
On the flip side, retail remains a trouble spot because of competition and overbuilding.
I think energy is a sector that’s trying to work off the oversupply built up from years of record products and technological advancements.
In my opinion, technology based areas struggled mightily during the first quarter, so it will be interesting to see if the lower rate of growth will persist during the rest of the year.
Missing Catalyst
What could cause a pickup?
First, I believe that all of the current conditions which have been in place for the last few years remain staid.
Interest rates are at rock-bottom levels (the 10-year Treasury yields is around 1.82%), and commodity prices too, although they have seen some lift in the last few months (copper, oil, steel, gold, silver, grains).
Deal Flow
Merger and acquisition activity remains very high in the corporate area, but I think the IPO window has slammed shut.
I also believe that high-yield credit markets have also tightened up as lower-rated credits find far fewer owners willing to take their issues.
Corporate profits have dipped for the last three quarters, and a few high-profile public companies such as Apple (APPL) and Google (GOOG) missed earnings estimates, further putting into question the overall health of the earnings power of domestic publicly-traded companies.
Share Prices
When viewed through the prism of stock prices, lower profit outlooks will always put into question how much a buyer is paying for slower growth.
Looking forward, as it becomes more evident who the two presidential nominees are, the country braces for a contentious contest between two candidates many find unappealing in my opinion.
With summer rapidly approaching, hopefully the hot weather will stimulate economic activity for a nation which badly could use improved economic growth.
Photo Credit: Neil Kremer via Flickr Creative Commons
