Analysts unfazed by economy's fourth-quarter dip

Wednesday's report from the Commerce Department shows that the economy contracted by 0.1%; experts more focused on markets' momentum gain

Jan 30, 2013 @ 12:35 pm

By Jeff Benjamin

Markets, economy
+ Zoom
Analysts are focusing on the gaining momentum of the financial markets and not the surprising GDP dip. (Bloomberg)

Today’s report that the U.S. economy shrank by 0.1% in December on an annualized basis is probably not a number worth hanging a hat on, according to Paul Schatz, president of Heritage Capital LLC.

“The GDP number was a surprise, but it is also a preliminary number that will probably be revised, or several of the months leading up to it will be revised,” he said. “Basically, I don’t think the GDP is as weak as it was reported.”

The bigger picture, according to Mr. Schatz and other market watchers, is the current and growing momentum of the financial markets.

While Mr. Schatz doesn’t believe that the U.S. economy will be able to meet analysts’ expectations for a 2.5% growth rate this year, he does think the stock market is poised for a strong, if abbreviated, rally.

Some of the major equity indexes that already have hit new highs include the Russell 2000 Small Cap Index, the S&P 400 Mid Cap Index and the Dow Jones Transportation Average.

Meanwhile, both the S&P 500 and the Dow Jones Industrial Average are within striking distance of the all-time highs set in October 2007.

Support for the rally is seen in the latest investor confidence data, Tuesday from State Street Global Markets, which showed January representing the second consecutive month of an increased appetite for equities.

Paul O’Connell, senior researcher at State Street, warned against making too much of the recent investor confidence data, but he did acknowledge: “For now, at least, it seems that the steady move away from equities has come to a halt.”

“However, I’m not sure I would project that this is a turning point toward equities,” he added. “We would need to see a few more months of this kind of data to say that.”

The fact that consumer confidence data, which also came out Tuesday, is moving in the opposite direction of investor confidence is considered an anomaly, but also logical.

“As an investor watching your portfolio grow with the market, you have to be feeling pretty good,” Mr. Schatz said. “But if you’re a consumer, you’re starting the year with higher taxes, the job market is the same, and you’ve got all those holiday bills to pay.”

The December gross domestic product data, representing one element of a data-rich week, added a slight drag on the equity markets during the first half of the day Wednesday.

While the S&P 500 was down less than 1% in midday trading, gold was up 1.3% and the yield on the 10-year Treasury gained more than 2% to a level of 2.028%.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Women's retirement needs and the opportunity they present for advisers

Assistant managing editor Lorie Konish speaks with contributing editor Mary Beth Franklin about the unique planning considerations for women as they prepare for income needs later in life.

Latest news & opinion

Eduardo Repetto to leave Dimensional Fund Advisors

Gerald O'Reilly, currently co-CIO, will take over as co-CEO with David Butler.

Alternative strategies boomed after crisis, but haven't been tested

Because the S&P 500 has outperformed, convincing clients they need protection is a hard sell.

7 ways advisers fixed clients' biggest financial dilemmas

Sometimes it takes creativity, along with knowledge and outside help, to get a client out of a jam.

LPL Financial buys NPH, a broker-dealer network with 3,200 advisers

The deal, part of which is based on the advisers and revenue that eventually will move from NPH, could potentially cost LPL $448 million.

3 things advisers should make sure their clients' children take to college

Advisers can help clients avoid scary and painful situations with kids age 18 and older.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print