Federated Investors discusses consumer spending and speculates on the potential "snapback" in the coming quarter.
"Market Overview
The month closed with the first revision to the first-quarter flash estimate of the U.S. gross domestic product (GDP), showing the economy entered contraction territory. A wider trade deficit, smaller inventory build and a downward tweak to already modest consumer spending drove the decline, putting real GDP at -0.7% annualized. The report was hardly surprising to the markets, which actually had been expecting a little worse. The bigger question is how much of a snapback to expect in the current quarter.
Much of the data to date has been mixed to slightly better, with manufacturing inching forward but still struggling, services cooling a bit but still expanding robustly and consumer spending improving but still very subdued. About the only metric sending a clear upward signal is housing, where starts jumped and both new and existing home sales made a solid move up. Job growth did increase from March’s dramatic slowdown and wage growth improved somewhat, but neither at a pace indicating much economic strength.
In fact, the course of the markets appears to be one of wait-and-see.The same could be said for oil, which has moved well off its recent floor but seems to be settling into a $45-$65 range. Supply and demand dynamics continue to suggest an oversupply relative to demand, but geopolitical uncertainties also are weighing on the market: Will there be a nuclear deal with Iran that subsequently floods the market? Will OPEC keep pumping as it works to hold onto market share or will it feel the need to pull back amid pressure from member countries? What will Russia do? As with the rest of the economy, only time will tell.
Performance and Strategy
Dedicated to its goal of providing investors with a high and growing source of income, the Strategic Value Dividend portfolio provided a high dividend yield of 4.3% at month end. This surpassed not only the broad market represented by the S&P 500 Index with its 2.0% yield, but it also exceeded the 3.7% yield of the Dow Jones Select Dividend Index, which aims to reflect the domestic dividend-paying universe. The Strategic Value Dividend portfolio also experienced one dividend increase in May, courtesy of Williams Companies which increased its dividend payment by 10.3%.This is the second increase for Williams this year and the fourth over the past 12 months, for a cumulative increase of 50.6% for the trailing one year. Over that same 12 month period, 30 of the portfolio’s 36 holdings increased their dividend distributions, and the portfolio realized 35 increases overall as this includes multiple raises from Williams Companies and Kinder Morgan which increased their dividends four times and three times, respectively. Additionally, one company within the portfolio, GlaxoSmithKline, declared a special dividend that will be payable in 2016. Of the portfolio’s 36 stocks, 83% have paid consecutive annual dividends for the past 20 years, 61% have done so for the past 50 years and 19% have paid annual dividends for the past 100 years." Download to read the full commentary.
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