US30 Climbs as Fourth-Quarter Grows
By: Eddy Peng Mar 31, 2017
Chart 1: US30 Daily
Recent gain of the US30 is possibly attributed to positive news that data on Thursday showed Gross domestic product rose at 2.1 annualized pace (forecast was for 2 percent), revised from 1.9 percent, meaning the U.S. economic growth was stronger than previous reported last quarter, helped by robust consumer spending, while the tech-heavy Nasdaq set a record closing high. Although GDP outperformed in the fourth quarter, the economy grew at a 3.5 percent rate in the third one. Despite the upward revision to the fourth quarter, the economy grew only 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015. Signs for economic slowdown are looming in the first quarter, with the trade deficit widening in January and both consumer and construction spending weakening. February’s construction spending MoM dropped at a 1 percent rate, worse than forecast rate (0.8 percent). With the labor market near full employment, the data likely understated the health of the economy and GDP tends to be weaker in the first quarter because of calculation issues the government has acknowledged and is trying to resolve. “Some of this softness is due to seasonal adjustment issues that will reverse later in the year,” said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh. “Consumer spending will lead growth thanks to higher incomes from more jobs and rising wages.” Though the unemployment has been largely lower by the moderate growth, President Donald Trump is likely to face a range of challenges in achieving goal of boosting annual growth to 4 percent by slashing taxes, raising infrastructure spending and cutting regulations. Fed’s Chair Janet Yellen shifted to a more hawkish tone, as the world’s biggest economy progresses toward goals for full employment and 2 percent inflation. A few potential rate hikes could lead to funds outflow from stock markets. Investors remained focused on execution of Trump’s administration, who hinted they revisit health-care reform, raising angst that tax cut attempts may put off. Analysing through Fibonacci retracement, we see the current trend is more likely to maintain its decreasing momentum while the possibility of reversal would be close to 40 percent. If it failed to reverse for rising, traders may look for a short position for further drop.
Chart 2: US30 Daily – Fibonacci retracement
