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GDP + Fed = 'Meh'

| November 02, 2015
MPCA Weekly Market Update

The S&P 500 index closed, just barely, in positive territory for the fifth straight week.  The Dow Jones index and the S&P Midcap were up slightly as well, although the S&P Smallcap lagged and was actually negative for the week.  U.S. economic reports were mixed and generally in line with expectations.  The two major news events for the week – third quarter GDP and the Fed interest rate decision – proved uneventful to market direction.

Economic growth in the U.S. slowed to a 1.5% annual rate in the third quarter.  The major headwind was an inventory drawdown that took 1.44% off GDP, presumably to be made up in coming months as inventory restocking occurs.  Trade was a neutral surprise, as exports and imports largely offset each other.  A key component, consumer spending, grew at a 3.2% rate, down from 3.6% in the second quarter.  Real final sales, which excludes the effect of inventory changes, were up a solid 3%.

The U.S. Federal Reserve maintained low interest rates, but indicated a willingness to consider a possible rate increase at its December meeting.  By then, the Fed will have current GDP data as well as employment reports for October and November as evidence for or against a rate hike.

Other economic data was mixed as well.  New U.S. single-family home sales fell in September to close to a one-year low after a couple of monthly gains.  Sales fell 11.5% to a seasonally-adjusted annual rate of 468,000 homes.  Other housing reports showed strength, however.  The S&P/Case-Shiller home price index rose 4.7% for the year ending in August, up from July.  The 10-city and 20-city measures also rose slightly, and 18 of 20 cities had month-over-month increases before seasonal adjustment.

As noted above, September consumer spending was mild compared to healthier increases in July and August.  The September increase was the smallest since March.  The price index for personal consumption expenditures, the Fed’s favored inflation gauge, fell 0.1% in September Gand rose just 0.2% from a year ago.  Core prices, which exclude more volatile food and energy costs, rose 1.3% for the past twelve months.

All in all, the data was mixed and added up to a mild week for the domestic equity markets.  Apple (AAPL) provided after-hours excitement on Wednesday with larger-than-expected Q3 revenue and earnings growth, powered by a 36% jump in iPhone sales, as the launch of the 6s and 6s Plus models in September was a success.  Apple’s sales in China nearly doubled, making up almost a quarter of total revenue.  Net sales rose 22% overall.