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In today's episode of Market Week in Review, Head of AIS Business Solutions Sophie Antal Gilbert was joined by Chief Investment Strategist, Erik Ristuben. Together, they talked U.S. GDP, earnings seasons and Iranian oil waivers.
U.S. GDP growth numbers blow past expectations
Ristuben first noted that even though first quarter numbers for U.S. gross domestic product (GDP) flew past expectations, the market response was basically flat. Ristuben listed the first quarter U.S. GDP at 3.2%, while estimates were at 2.3%. He noted that one key factor for the higher numbers was a rise in inventory builds. But Ristuben noted that inventory increases tend to be volatile. He said, "You know, what inventories giveth, they take away."
In addition, while GDP numbers were up, Ristuben said that "consumer spending was not great in the first quarter, nor was business spending great in the first quarter." He added, "The business spending in particular is an area of watch for us, because one of the things that we saw in the end of the fourth quarter was, CEO confidence fell off the table in the fourth quarter." Ristuben said, "CEOs have not felt the rush of confidence that the equity markets would seem to indicate and with business spending being a little soft in the first quarter, I think that’s what’s got people’s attention and that's why I don't think the market’s been positively reacting in a big way to that GDP number."
What about the current U.S. earnings season? Are we seeing a similar picture there? Gilbert noted that we’re about a third of the way through the announcements and asked Ristuben what he was seeing.
Ristuben declared the earnings season so far a mix of good and bad. He said, "The really good part of earning season is that the vast majority of companies are beating earnings estimates." Ristuben also noted that a little over half the companies who have reported so far have also beaten revenue estimates. "The problem," he said, "is that the headline blended-earnings-growth number is still negative." Ristuben added that it looks like "this is a quarter that’s going to be modestly negative when everything’s done and dusted."
The end of Iranian oil waivers
The U.S. government has changed its stance this week on waiver programmes for oil and Iran. Ristuben explained that this programme allowed companies to access Iranian oil through a waiver system. He stated that it "probably has the effect of taking the supply out of the market." He explained that one would expect that to be positive for oil prices, because if there’s less supply, that should raise the price. But actually, Ristuben said that oil prices are down slightly for the week.
Ristuben said he expects those prices to rise modestly soon. "On balance," he said, "this Iranian waiver issue probably actually puts some upward pressure — a modest amount of upward pressure — on that oil number, because the idea is that if Iranian oil drops out of the world’s supply market, Saudis will kick in and replace it — and they said they will. U.S. shale companies will probably come in and replace it. But the reality is that it doesn’t happen instantaneously."
U.S. GDP growth numbers blow past expectations
Ristuben first noted that even though first quarter numbers for U.S. gross domestic product (GDP) flew past expectations, the market response was basically flat. Ristuben listed the first quarter U.S. GDP at 3.2%, while estimates were at 2.3%. He noted that one key factor for the higher numbers was a rise in inventory builds. But Ristuben noted that inventory increases tend to be volatile. He said, "You know, what inventories giveth, they take away."
In addition, while GDP numbers were up, Ristuben said that "consumer spending was not great in the first quarter, nor was business spending great in the first quarter." He added, "The business spending in particular is an area of watch for us, because one of the things that we saw in the end of the fourth quarter was, CEO confidence fell off the table in the fourth quarter." Ristuben said, "CEOs have not felt the rush of confidence that the equity markets would seem to indicate and with business spending being a little soft in the first quarter, I think that’s what’s got people’s attention and that's why I don't think the market’s been positively reacting in a big way to that GDP number."
What about the current U.S. earnings season? Are we seeing a similar picture there? Gilbert noted that we’re about a third of the way through the announcements and asked Ristuben what he was seeing.
Ristuben declared the earnings season so far a mix of good and bad. He said, "The really good part of earning season is that the vast majority of companies are beating earnings estimates." Ristuben also noted that a little over half the companies who have reported so far have also beaten revenue estimates. "The problem," he said, "is that the headline blended-earnings-growth number is still negative." Ristuben added that it looks like "this is a quarter that’s going to be modestly negative when everything’s done and dusted."
The end of Iranian oil waivers
The U.S. government has changed its stance this week on waiver programmes for oil and Iran. Ristuben explained that this programme allowed companies to access Iranian oil through a waiver system. He stated that it "probably has the effect of taking the supply out of the market." He explained that one would expect that to be positive for oil prices, because if there’s less supply, that should raise the price. But actually, Ristuben said that oil prices are down slightly for the week.
Ristuben said he expects those prices to rise modestly soon. "On balance," he said, "this Iranian waiver issue probably actually puts some upward pressure — a modest amount of upward pressure — on that oil number, because the idea is that if Iranian oil drops out of the world’s supply market, Saudis will kick in and replace it — and they said they will. U.S. shale companies will probably come in and replace it. But the reality is that it doesn’t happen instantaneously."
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.