U.S. markets showed strength throughout much of Thursday’s action following a goldilocks GDP report and a stable jobless claims number. Near-term resistance levels held ahead of the late day weakness that came in the final hour of trading.

The major indexes held the majority of their gains with the small-caps being the weak link.

Volatility relaxed after closing above a key support level but remains slightly elevated heading into the final trading day of the month.

The Nasdaq rose 0.3% following the morning run to 7,595.

Prior and lower resistance at 7,600-7,650 was challenged but held with a close above the latter getting 7,700-7,750 back in play.

The S&P 500 climbed 0.2% after tapping a first half high of 2,799.

Key resistance at 2,800 held with a close back above this level signaling possible strength towards 2,825-2,850.

The Dow also added 0.2% following the intraday run to 25,218.

Prior and lower resistance at 25,250-25,500 held with a close above the latter and the 200-day moving average being a more bullish development.

The Russell 2000 fell 0.3% despite testing a morning peak of 1,500. Near-term and lower resistance at 1,500-1,515 was tapped but held with continued closes above these levels signaling a possible near-term bottom.

Consumer Discretionary led sector strength after rising 0.7%.

Technology, Real Estate and Healthcare gained 0.6%.

Energy lead sector weakness after giving back 1.3%. Financials and uTilities rounded out the laggards with losses of 0.3% and 0.2%, respectively.

Global Economy – European markets showed strength after British Finance Minister, Philip Hammond, publicly backed candidates opposing the possibility of a no deal Brexit in the race to replace resigning Prime Minister Theresa May.

The Belgium20 was higher by 0.7% while France’s CAC 40, Germany’s DAX 30 and UK’s FTSE 100 rose 0.5%.

The Stoxx 600 Europe gained 0.4%.

Asian markets settled mostly lower after Chinese Vice Foreign Minister Zhang Hanhui compared U.S. trade provocations to naked economic terrorism.

Australia’s S&P/ASX 200 gave back 0.7% and Hong Kong’s Hang Seng was lower by 0.4%. Japan’s Nikkei and China’s Shanghai were off 0.3%. South Korea’s Kospi bucked the trend after rising 0.8%.

GDP growth was revised down to fractionally a 3.1% pace, beating forecasts of 3%, after posting a better than expected 3.2% gain in the Advance report.

For Q1, consumption was bumped up to 1.3% versus 1.2% initially. Fixed investment was nudged down to 1% from 1.5%, with nonresidential spending at a 2.3% rate from 2.7%, and spending on residential getting knocked down to -3.5% from -2.8%. Government consumption was revised up to 2.5% versus 2.4% previously.

Inventories contributed $28.7 billion (0.60%) versus $31.6 billion (0.65%). Net exports added $52.1 billion (0.96%) from $56.4 billion (1.3%). The PCE price index slipped to 0.8% versus 0.9%. The core rate dipped to 1% from 1.3%.

Initial Jobless Claims rose 3,000 to 215,000, matching forecasts. The 4-week moving average fell to 216,750 from 220,500. Continuing claims fell 26,000 to 1,657,000 following the 19,000 rise to 1,683,000 the prior week.

International Trade in Goods Balance for April at checked in at -$72.1 billion versus estimates of -$71.9 billion. Exports dropped 4.2% to $134.59 billion, while imports slipped 2.7% to $206.71 billion.

Retail inventories were up 0.5% to $660.9 billion from $657.8 billion. Wholesale inventories increased 0.7% to $674.5 billion from $670.1 billion.

Pending Home Sales fell 1.5% to 104.3 in April, following March’s 3.9% jump to 105.9.

On a 12-month basis, the index has posted a small, but positive 0.4% year-over-year rate, breaking a string of 11 consecutive months in contraction, and is only the second expansionary reading over the past 17 months.

Regionally, 3 of the 4 sectors declined, led by the South (-2.5%), followed by the Northeast and West (both -1.8%), with the only gain seen in the Midwest (1.3%).

Market Sentiment – Fed Vice Chairman Richard Clarida views the policy stance as appropriate, while reiterating other Fed officials’ sentiments that the economy is in a very good place.

He also support the view that some of the softening in the recent inflation is transitory. Clarida said there are 2 key factors for an easing from the FOMC – if data were to show a persistent shortfall in inflation below the 2% target, or if the numbers were to indicate that global economic and financial developments present a material downside risk to our baseline outlook.

On the other hand, Clarida suggested little risk for a hike given fiscal policy remains stimulative, slack in the labor force (and more room to run for prime age workers), a lack of wage push pressures, muted inflation, and a pick up in productivity growth.

He acknowledged there’s been some brief yield curve inversion, but didn’t signal alarm and attributed a lot of it to global developments.

Fed VC of Supervision, Randal Quarles believes the central bank’s interest rate tool should be guided mainly by the dual mandate of unemployment and inflation, and not by the state of financial vulnerabilities.

However, he added financial stability must be a consideration in policy as it impacts employment and prices.

He thinks the best way to combat financial market instability is through regulations, such as capital and liquidity requirements, and the Fed’s macroprudential policy tool.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 6-straight sessions after tapping to a fresh 52-week high of $130.23.

Fresh resistance at $130.50-$131 held with a close above the latter keeping $131.50-$132 in play.

Short-term support is trying to move up to $129.50-$129.

Market Analysis – The Spider Small-Cap 600 ETF (SLY) fell for the 3rd-straight session despite trading to a morning high of $64.83. Current resistance at $65-$65.50 held with additional hurdles at $66-$66.50.

The 50/200-day moving averages are showing signs of rolling over and remain in slight downtrends.

Mid-January support at $64-$63.50 was tripped but held on the fade to $63.79 afterwards.

A close below the latter would be a continuing bearish development with downside risk towards $63-$62.

RSI is in a downtrend with mid-December support and the monthly low at 33 holding.

A close below this level could lead to additional weakness towards 30-25. Resistance is at 35-40.

The Consumer Discretionary Select Spiders (XLY) snapped a 2-session slide after trading to an intraday high of $112.79. Current and lower resistance at $112.50-$113 was cleared but held.

Continued closes above the $115 level would be a more bullish signal of a near-term bottom.

Shaky support is at $112-$111.50.

A move below the latter opens up risk towards $110.50-$110 and the 200-day moving average.

RSI is in a slight uptrend with resistance is at 40.

A close above this level would be a bullish development for additional strength towards 45-50. Support is at 35-30.

All the best,
Roger Scott.