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First Quarter GDP Released at 8:30

Today’s release of first quarter growth and tomorrow’s posting of the PCE or the Federal Reserve’s preferred measure of inflation are projected to keep the Fed tilted toward another interest rate hike next week.

The data are likely to present a picture of an economy that started the year strong—driven largely by a January surge in consumer spending—before losing momentum.  Inflation, however, is expected to be roughly double the Fed’s target, underpinned by resilient demand for services and strong wage growth.

The reports are released less than a week before Fed policymakers meet on May 2-3 to consider another quarter percentage point increase in their benchmark interest rate.

GDP is expected to have risen at a 2% annualized rate, driven primarily by what will likely be the strongest quarter for personal spending in nearly two years according to Bloomberg, perhaps the result of unseasonably warm weather in January and February.

Inventories are expected to be a notable drag on GDP, reflecting a slower build as compared to the prior period.  The opinion is split as to whether inventory reduction is bullish or bearish.  On the bullish camp, a draw down in inventories suggest stores must be replaced.  The bearish argument is that confidence in tomorrow is waning.

Regarding tomorrow’s PCE data FRB Chair Powell has emphasized the importance of service inflation excluding energy and housing.  Powell has stated that this “supercore” measure accelerated in March, increasing pressure on the Fed to hike rates again next week.

Commenting on yesterday’s market activity, the averages were bifurcated.  The S & P 500 retreated 0.4% on the health of regional lenders.  The NASDAQ ended 0.6% higher on the surge of MSFT which closed about 7.2% higher. 

Bloomberg writes the breadth is further narrowing and relative to the market cap weighted index, the NASDAQ is now at the lowest since September 2022

Treasuries fell following a weaker than expected auction and ahead of a vote on the debt ceiling bill which at the time of this writing is expected to pass in the House.

After the close META reported results that topped expectations causing shares to surge about 10% in after-hours trading.

Tonight mega sized AMZN announces earnings.  How will the profits be interpreted?

Last night the foreign markets were up.  London was down 0.01%, Paris up 0.31% and Frankfurt up 0.02%.  China was up 0.67%, Japan up 0.14%  and Hang Seng up 0.42%.

Futures are up about 0.5% on META’S earnings.  The 10-year is off 2/32 to yield 3.47%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.