Last week produced a mixed bag of economic anecdotes and yet another occurrence of heartbreaking terror attacks, this time in the heart of Europe. Oil and U.S. equities broke their respective five week winning streaks, both losing ground in the holiday shortened trading week.
For the week, markets absorbed both constructive and concerning anecdotes. On the positive side, fourth quarter GDP was revised up from 1% to 1.4%, reinforcing the view that both the U.S. consumer and the housing market remain supportive to growth. The report contained meaningful upward revisions to consumer spending (PCE) and residential fixed investment. Fourth quarter consumer spending grew 2.4%, while spending for the full year of 2015 grew by 3.1%, the fastest pace since 2005.
Some negative market sentiment stemmed from the February durable goods orders (ex-transports) report falling -1%, much further than expectations, indicating a challenging environment for business investment. Additionally, FOMC voting member, James Bullard, unsettled markets mid-week with some hawkish comments running counter to Fed Chair Janet Yellen’s press conference comments the week prior. The BEA’s release of fourth quarter corporate profitability raised concerns about U.S. corporate health. NIPA data showed profitability declined -3.6% year over year in the fourth quarter. Quarterly profit declines in the third and fourth quarter were -3.3% and -8.1% respectively, the largest decline since 2011. Profit contraction has been impacted by three driving forces – strong dollar, weak non-U.S. growth, and falling energy prices. Thanks to a decent first half of 2015, overall corporate profits for still managed to rise 3.3% over the full year.