GDP slump! Pullback time?
by Peter Switzer
After a massive surge for stocks since mid-2012, reinforced by another since November, the charts guys think a pullback is overdue but there has to be a trigger and we might have got it last night via Wall Street.
The bogey was a bad GDP read for the final quarter, which came in negative!
The Dow dipped 44 points or 0.32 per cent to 13,910.42 while the S&P 500 index lost 5.88 points or 0.39 per cent to finish at 1,501.96.
One comforting aspect of all of this is the fact that this isn’t a dramatic reaction and it could be linked to the idea that the reading was not a reliable reading of what is actually going on in the US economy.
So, what was the real story?
The first reading of fourth quarter GDP came in at negative 0.1 per cent annualized and the US economy has not shrunk since the June quarter of 2009! By the way, the third quarter was plus 3.1 per cent and so something weird has gone on.
The slump was linked to a cut in national defence spending and a fall in inventories in private companies, which was probably driven by lots of sales, which of course is a good thing.
Against these negatives there was good growth for consumer spending, housing and business investment.
This also happened with the fiscal cliff fears, the election and Hurricane Sandy, which were all spook factors for business as well as consumers.
"The combination of declining defence spending and rapidly falling inventories reduced growth by 2.6 percentage points and those two negatives are not likely to be repeated, especially at the pace seen last quarter," said Joel Naroff, chief economist of Macroeconomic Advisors in the USA.
And he’s spot on and that’s why the sell-off of stocks was so muted. By the way, there will be two more revisions of this number and so it could become slightly positive by the time the number crunching is over.
The next market focus will be the jobs report on Friday, and if this is another shocker with no explicable excuses, the pull-back might get a few extra supporters.
I expect a pullback on stocks but nothing dramatic, for the moment.
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Published on: Thursday, January 31, 2013
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