Yields In Recovery, S&P 500 Closes Above 2,800 And Nonfarm Payrolls Ahead

It's not often that you see a market aimed at crushing the options on Friday, but "manalamancha" was that fun to watch with the major indices rising sharply prior to the ISM manufacturing data being released.

The Institute for Supply Management said its survey of top manufacturing executives fell to 54.2% last month from 56.6% in January. Economists surveyed by MarketWatch had forecast the index to total 55.5%.

The index for new orders dropped 2.7 points to 55.5%, with production falling a steeper 5.7 points to 54.8%. Employment slipped 3.2 points to 52.3%, also the lowest in two years.

With the negatives out of the way, on a more positive note, the prices companies pay for raw materials and other supplies continued to drop in line with a gradual decline in inflation. What’s more, 16 of the 18 industries tracked by the ISM reported growth. There's actually another really important way of reviewing the latest ISM data, but that's for another day. 

Probably the biggest data point released on Friday was the Q4 2018 GDP data that surprised to the upside. GDP rose 2.6% in Q4 2018 against the average estimate of 2%. Finom Group (for whom I am employed) would be of the opinion that this GDP print gets revised lower and possibly finishes with a 2.3% growth rate when it's all said and done in the next couple of months.

Consumer spending, the main engine of the economy, increased a healthy 2.8% in the fourth quarter. Americans spent more on new cars and trucks, health care and financial help, among other things. Businesses investment, meanwhile, was stronger than expected. Companies invested more in equipment and product research, offsetting another decline in spending on structures such as drilling rigs or office buildings.

In a big surprise, firms also increased the value inventories by $97.1 billion, even more than in the third quarter. Other reports had suggested inventories would shrink.

The rate of inflation tapered off in the 4th quarter of 2018. The PCE index rose at a 1.5% pace in the quarter, with the core rate that excludes food and energy up 1.7 percent. Inflation ran about 2% for the entire year, right at the Federal Reserve’s target.

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