When Everything’s A Winner…

When every market is a winner, it’s time to take some profits. On Monday, the NYSE opened to nothing but green yet again. And despite weak first quarter GDP data, first quarter corporate earnings continue to impress with Apple ([stock_quote symbol=”AAPL” show=”symbol”]) hinting it could increase its dividend payout. Yield on Apple dividends is only 1.56%.

Barclays Capital says the U.S. economy should remain in recovery phase. They’re not too worried about the first quarter numbers.

Why 1Q Looked So Weak

Barclays blames it on seasonality. Inadequate seasonal adjustment methods have consistently lowered quarterly GDP numbers against market consensus. The shortfall tends to be made up over remaining quarters, with a redo of the numbers pointing to about one percentage point higher than initial numbers.

“We think there is more to this report than residual seasonality given that much of the slowdown is driven by the household sector, ” writes Michael Gapen, an economist for Barclays in New York. Gapen and his colleagues say that the household spending data is not “statistically dampened” like other categories, namely investment and trade. It’s reasonable to ask whether sluggish private consumption seen in the first quarter last week really points to a loss of economic momentum. Judging by the market’s open on Monday…no.

Utilities consumption drove much of the underperformance in household consumption. Consumer spending fell 2.5% in January on an annualized basis, of which 1.6 percentage points came from spending on utilities. Similarly in March, utilities drove 70% of the decline in personal consumption expenses. Utilities are impacted by weather. This isn’t about Americans lowering the thermostat to save on electricity and heating bills.

The first quarter started off relative mild here in the east. The rich northeast did not have a particularly cold winter either. Now that temperatures have turned to spring, March industrial production data is already showing a reversal of the sharp declines in power generation at the start of the year.

“We expect this to pass through to the personal spending data for March and see this component of household spending as turning around during the second quarter and, at the very least, not posing a headwind to activity.”

In other words, if you’re waiting for bubbles or for leverage to collapse, keep waiting. The first quarter revision will be better and the second quarter will likely be more of the same.

Nevertheless, some investors have been hedging by buying gold ([stock_quote symbol=”GLD” show=”symbol”]) and others tell us they are selling out of the Russell 1000 ([stock_quote symbol=”IWB” show=”symbol”]) and the Russell 2000 ([stock_quote symbol=”IWM” show=”symbol”]).