Wednesday on Wall Street reminded us of an all-you-can-eat Denny's breakfast buffet -- packed with a whole bunch of market-moving data, meetings, and earnings reports for hungry investors to choose from. Plus there was a sweet dessert -- the Dow Jones Industrial Average (DJINDICES: ^DJI ) popped 45 points to reach 16,581 points, its first record close of 2014.
1. U.S. GDP barely grows in first quarter
The first reading is in for the first-quarter GDP growth of the U.S. economy -- up 0.1%. If that number looks pathetic, it's because it is (economists were expecting 1.1% growth). Economic weakness abroad hurt our export business, and domestic frozen-ness this winter killed investment here at home.
It's the second worst quarterly growth since the recovery began five years ago, which was the biggest weakness. Investors took some solace in the fact that consumer spending, which is the heart and soul of the U.S. economy, grew at a solid 3% rate.
Remember: Gross domestic product is the broadest way to look at an economy. It adds up all economic activity (buying and selling of stuff) and gives you one big number. The US GDP was $16.8 trillion last year, and we need 3% growth or more annually to make a real dent in the unemployment rate, lift wages, and support the middle class. These are the Holy Trinity of economics and have big effects on companies' profits and on the stock markets.
The takeaway is that the economy grew at a 3.4% pace the second half of last year, so 0.1% growth last quarter is a cold slap in the face. The U.S. was like the Siberian tundra in January and February. No wonder the Soviet economy had it tough.
2. ADP predicts big 220K job gain for April
The number 222,000 is more than jut a nice, round figure with a pleasant balance of zeros and twos. It's also the number of jobs that payroll-tracking firm ADP is projecting the U.S. added in April. That figure beat general expectations, and it's a solid improvement from the 192,000 jobs the U.S. actually added in March, showing that the economy shook off the winter ice to gain some momentum for the spring.
The takeaway is that before you pop open those celebratory PBRs, remember that the ADP job report is helpful, but it ain't the real deal. Investors look to the ADP number as just a preview for the official monthly jobs report, which for April the Labor Department will release at 8:30 a.m. ET this Friday. Looks like expectations will be kind of high.
3. Fed cuts stimulus further after two-day policy meeting
"It's just a snip" isn't the kind of thing you want to hear from either your doctor or the Federal Reserve. But that's just what was decided at Wednesday's finish of the two-day, eight-times per year, policy-setting meeting of the heads of the nation's central bank. The Fed's cutting its monthly stimulus support by a cool $10 billion.
Need some background? To give the U.S. economy its mojo back, the Fed's been instituting its third round of "quantitative easing" (aka "QE3"), a policy in which it buys billions of long-term bonds monthly, which keeps interest rates low -- and low interest rates encourage folks to borrow money, and spend that cash on economy-boosting splurges, like new homes or absurd products from SkyMall magazines.
So why didn't Wall Street freak out that its beloved stim was slowing? As QE3 has slowly been reduced from $85 billion in bond purchases to $55 billion, and now $45 billion, over the past few months, they've frustratingly sold down stocks in response. But this time around, the stim cut was widely expected, so the response was more like a nonchalant, obnoxious shrug from investors instead.
4. eBay drops after poor outlook and huge tax bill
The first ever online auction company, eBay (NASDAQ: EBAY ) , had earnings headlines that looked great -- revenues grew 14% to $4.2 billion. That's what eBay wanted you to focus on. But like finding an appealing iPhone 5S on eBay for a couple of hundred bucks, it helps to read the fine print. Net income dropped from $677 million last year to a loss of over $2 billion.
It's was a $3 billion tax bill that caused the ridiculous loss. eBay decided last quarter to bring its cash home from overseas -- cash that was generated last year but stayed in Europe's glorious tax havens to avoid ugly tax payments. Well, shareholders want that money (and they're tired of making Europe look good), so eBay finally had to pay the back taxes on those profits generated abroad. There was a monster $9 billion cash hoard brought home, but a $3 billion tax bill came with it and erased the net earnings for the quarter.
Adjusted profits were $899 million, up 8% from last year. Companies create the adjusted numbers so that your mind isn't blown away by huge one-time events that have nothing to do with the normal business (like a $3 billion tax payment). Investors still sold eBay like a prematurely made Broncos Super Bowl champs T-shirt -- it was down 5% Wednesday, as its forward earnings projections were disappointing.
- Motor-vehicle sales
- Fed Chairwoman Janet Yellen speaks
- ISM manufacturing index
- First-quarter earnings reports: Expedia, ExxonMobil, MasterCard
MarketSnacks Fact of the Day: About 58% of the world's fish stocks have now collapsed or are over-exploited.
As originally published on MarketSnacks.com
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