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

Ed Slott: The conversation advisers need to have with spousal IRA beneficiaries

Clients who inherit IRAs from their spouses need to decide whether to remain beneficiaries or do spousal rollovers. One important factor in that decision is their age, according to Ed Slott, founder of Ed Slott's Elite IRA Advisor Group.

Latest news & opinion

Will Jeffrey Gundlach's Trump-like approach on Twitter work in financial services?

The DoubleLine CEO's attacks on Wall Street Journal reporters is igniting a discussion on what's fair game on social media.

Fidelity wins arb case against wine mogul but earns a rebuke from Finra

In the case of investor Peter Deutsch, Fidelity doesn't have to pay any compensation, but regulator said firm put its interests ahead of his.

Plaintiffs win in Tibble vs. Edison 401(k) fee case

After a decade of activity around the lawsuit, including a hearing before the U.S. Supreme Court, judge rules a prudent fiduciary would have invested in institutional shares.

Advisers get more breathing room to make Form ADV changes

RIAs can enter '0' in some new parts of the document before their annual filing next year.

Since banking scandal, Wells Fargo advisers with more than $19.2 billion leave firm

Despite a trying year, the firm has said it will sweeten signing bonuses for veteran advisers.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print