Lest We Forget

May 2015 Monthly Summary

201505 MktData


With Memorial Day just behind us, summer is on its way!  The weather is warming up, but the markets remain only lukewarm.   The S&P 500 ended up 1% for the month while bonds were essentially flat.  The Dow is still being challenged by the 18,000 mark and as of the time of this writing, has again dropped below that mark again.1  The latest unemployment report shows it staying around 5.5% with strong payroll growth.2  This implies that the Fed might be increasing interest rates this fall.  The counter-argument to when the Fed will move is that GDP for the first quarter was revised down to -0.7%.

However, the first quarter GDP doesn’t seem to always be a strong barometer of the economic growth trend.  Although the Bureau of Economic Analysis calculates GDP with seasonal adjustments, there is a pretty strong argument that they need to re-tweak their methods.  The chart below shows the supposed seasonally adjusted annual rates (SAAR) of quarterly GDP growth.  The first quarter of the year is in purple and if you run the numbers, you see some interesting “seasonal” occurrences.  Since the turn of the century, the average growth rate for the first quarter is 0.71% while the average growth rate for each of the other quarters is 2.23%.  A pretty stark difference when considering that the effects of weather and seasonal buying patterns are all supposed to be neutralized in the calculation.
201505 GDP

201505 BarometerThe take away here is to not put too much emphasis on one quarter of results, especially the first quarter of GDP.  I expect a positive result for the second quarter and no real threat of a recession in the near future.  The interesting side effect of this premonition is that fear of rising rates and a stronger than anticipated economy will probably result in a lackluster market.  As we have cited in several other monthly summaries, sometimes good news is bad news and bad news is good news for investors.

We will continue to keep an eye on the markets and focus on appropriate allocations as we wait and see just how strong the economy really is and how the market will react.  Enjoy the oncoming summer and make the most of it!


1 Thomson Financial
2 www.bls.gov



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