Market Brief – Friday 4/26/19

After the blow, out first quarter GDP print of +3.2%, which took everyone by surprise, stock prices and Treasury yields both traded lower. The market makes the news, not the other way around. Wall Street has been advertising how great it is to buy stocks at the highs but as stock prices rise, there are fewer buyers.

Stock prices rise and fall not on the news but on the demand from buyers and sellers. Once Wall Street realizes all those who wanted to buy already bought, they will start to sell the market down. After all, the economic data is as bad as it was in 2009, yet stock prices are priced like they were in 1999.

The GDP number wasn’t all that great despite its large number. Much of the economic growth came from inventory building and exporting, neither of which is sustainable over the long term. Look for the recent build in inventories to drag on the economy in the quarters that follow.

Crude oil prices moved abruptly lower as President Trump announced that he called OPEC and that gas prices are “coming down.” Exxon Mobil’s earnings report today did not help, as net income was down -49% annualized and -61% from the fourth quarter.

In the last half hour of trading, buyers drove the S&P 500 to a new all-time closing high as trading volumes remain very weak. Treasury yields continue to oppose stock investors, as yields closed at their lowest level for the week, which suggests that stock prices are more likely to catch down to the Treasury market than yields are to rise to catch up to stock prices.

Agricultural commodities found buyers in early trading as sellers back off. This recent move down in commodity prices did not come on the back of strong volume, which suggests that buyers are testing the markets to see how many sellers are left. If prices can rally from here, even on weak volume, it would indicate that sellers are all tapped out.

Physical gold found buyers today but it failed to reclaim its 100-day moving average. Even though gold has bounced the last few days, it remains in a downtrend. Gold mining stocks rallied today but were rejected at their overhead resistance level.

Commercial and Industrial banks continue to buy bonds. This past week the largest banks added $16 billion in U.S. Treasuries, $5 billion of Mortgage-Backed Securities and $1 billion of non-MBS. When the largest banks buy bonds, is not a sign of economic strength.