Market Brief – Thursday 3/28/19

Fourth-quarter 2018 GDP growth was revised lower from 2.6% to 2.2%, with expectations this year’s GDP growth will be 3%, which is hard to believe since the economy couldn’t achieve that target last year despite a massive stimulative tax cut. First-quarter estimates from the Atlanta and New York Fed models put GDP growth around 0.5%.

Pending Home Sales fell -4.9% on an annualized basis, which is the fourteen-consecutive month of declines and the longest set of declines since 2008. On a monthly basis, pending home sales fell -1.0%.

U.S. stocks started the day higher, but those gains were quickly reversed. U.S. Treasury yields also started the day higher as investors see an opportunity to short Treasuries higher since stock prices seem to be unable to fall. Despite renewed interest in driving yields higher, 30-year Treasury yields headed lower in early trading.

Today’s $32 billion 7-year Treasury auction was met with strong demand as investors look for longer-term U.S. Treasury bonds. Foreign bidders took 64.5%, domestic bidders took 20.7% and dealers were left with 14.8% of the auction. Yields fell following the auction.

Stocks closed higher today with the S&P 500 closing at 2,815, just under the top end of its long-term resistance band between 2,790 and 2,816. Treasury yields closed slightly higher with 30-year Treasury yields briefly touching under 2.8%, which they last did in January 2018.

Physical gold was riding a channel higher but based on the price action and the chart patterns, it suggested physical gold was headed lower. Physical gold closed at $1,295/oz, just under its support level of $1,300/oz. Its next support level is around $1,250/oz, with another support level at $1,200/oz. Look for gold prices to continue heading lower. The mining stocks followed suit.

Oil and gas producers continue their multi-month sideways action, which should result in a continuation of their move lower. The “Smart Money” is selling as investors are buying. The “Smart Money” knows crude oil prices will follow 5-year Treasury yields lower, which will cause oil and gas stock prices to revisit and likely break below their December 2018 lows.

Agricultural commodities pulled back slightly and closed below their 50-day moving average on reports that a Chinese state-owned company purchased soybeans. Price rallies are normally interrupted by sellers, so this recent drop in prices is nothing to be concerned about.

The broad M2 Money Supply continues to slow with the annualized growth rate now down to 4.04%. More concerning is the slowing of the 6-month growth rate to 1.77% and the big drop in the 3-month growth rate to 0.46%. The last time the 3-month growth rate in the money supply turned negative was back in 2009 when we were deep into a recession. This is not a positive sign for those who believe the economy is going to continue growing.