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Economy

The economy may already have achieved what marked the bear-market lows of 1970, 1974, 1982, 1990, 2001 and 2009 – MarketWatch

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What a month. In the midst of a pandemic lockdown that has seen some 30 million Americans file for unemployment benefits, and millions more around the globe, the S&P 500
SPX,
-1.81%

surged 12.7% in April. That is the best monthly performance since Jan. 1987, and the best April since the Great Depression.

Jeff Hirsch, editor of the Stock Trader’s Almanac and chief market strategist at Probabilities Fund Management, says the lows from late March are likely to hold. He presents this chart on weekly jobless claims and bear markets, and finds the big bear market lows of 1970, 1974, 1982, 1990, 2001 and 2009 were marked by the peak in jobless claims.

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The most recent claims figure of 3.8 million for the week ending April 25 is well off the peak of 6.9 million. But that doesn’t mean he’s optimistic about the market.

“Even if March 23 turns out to be the ultimate low (and it does look like it) that does not mean the next six months or more are going to be pure rally to new highs. In fact new highs are not likely for quite some time and we will likely retest the lows,” he says. “There are some promising vaccines and treatments in the works and states are beginning to reopen, but there is no way of knowing when our lives and economy will return to some semblance of normal.”

The buzz

Apple
AAPL,
+0.70%

fell 3% reported a dip in profits for the fiscal second quarter but growing sales. The technology company said it would not give third-quarter guidance due to uncertainty caused by the pandemic.

Amazon
AMZN,
-6.24%

dropped nearly 5% as it warned it might not make money in the current quarter as the e-commerce company adapts to the coronavirus. First-quarter revenue topped expectations.

Disinfectant maker Clorox
CLX,
+5.21%

also topped expectations on virus-related demand.

The oil sector will also be in the spotlight as Exxon Mobil
XOM,
-3.93%

and Chevron
CVX,
-2.88%

both announced they would cut capital spending.

The key economic data will be release of the Institute for Supply Management’s manufacturing index for April, with automobile makers reporting vehicle sales throughout the day.

President Donald Trump on Thursday suggested tariffs could be a way he could punish China over the coronavirus outbreak, when responding to a question about a published report that said defaulting on Treasury obligations that China owns was a possibility. Various other White House officials have publicly said the U.S. won’t default.

The market

U.S. stock futures
ES00,
-2.02%

were pointing in the same direction as the trader adage, “sell in May and go away,” with futures on the Dow Jones Industrial Average
YM00,
-1.85%

down 399 points.

Many overseas markets were shut in observance of the May 1 holiday but markets in Tokyo
NIK,
-2.84%
,
London
UKX,
-2.18%

and Sydney
XJO,
-5.00%

slumped.

Crude-oil futures
CL.1,

turned higher, while gold
GC00,
-0.11%

futures slipped.

The chart

Joe Davis, Vanguard global chief economist, talks of a two-phase recovery from what’s he dubbed the Great Fall. “Getting business activity back to where it was before the pandemic could take two years — a U-shaped recovery — given shocks to both supply (stemming from containment measures) and demand (stemming from consumers’ likely reluctance to immediately resume face-to-face activities such as dining out, traveling, or attending large events). Some parts of the economy will recover more quickly than others. But it is unlikely we’ll see the labor market as tight as it had been before 2023, which means the U.S. Federal Reserve may be on hold near 0% interest rates for that long as well,” he writes.

Random reads

Now it’s getting serious — Key West, Florida, will skip the Ernest Hemingway Look-alike contest this year.

NASA says Antarctica and Greenland lost enough ice to fill Lake Michigan.

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Economy

U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Economy

Canadian economy starts the year on a rebound with 0.6 per cent growth in January – CBC.ca

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

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WATCH | The Canadian economy grew more than expected in January: 

Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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