Do You Really Believe GDP Contracted in Q4?

Expect GDP for Q4 to be revised significantly higher.

First look at Q4 GDP on Friday, reported a contraction from 3.2 to 2.6%. Please note the first estimate is based on incomplete data for the Quarter.

Key reasons why Q4 GDP will be adjusted significantly higher in February and March revisions:

  • Holiday sales for 2017 rose 4.9%; the biggest gain since 2011.
  • Auto Sales were up 2.4% in December.
  • Steadily rising Oil prices contributed to higher gasoline sales throughout Q4.
  • With 24% of S&P 500 Companies reporting for Q4; 76% have reported positive earnings, with 81% reporting better than expected earnings; 8 of 11 sectors reporting higher than expected growth; earnings for Q4 projected at 11% now expected to be 12% (FACTSET).
  • Strong Q4 job growth – especially in manufacturing.
  • Record Home Sales with shortage of labor supply to meet construction demand.
  • Dow Jones Ave gaining more than 10% over Q4.

Traders / Investors who outperform the market recognize anomalies in economic reporting. They don’t need talking heads or ‘analysts’ to provide spin or explanation. They have created their own projections and expectations based on factors they deem most relevant in adding to or subtracting from sustainable growth.

A few articles ago I wrote about the cost of bias. Did you analyze Friday’s reporting of GDP objectively?  Have you developed your own expectations for market performance in 2018? How much effort have you put into breaking down and thinking through the potential impact of the Tax Cut and Jobs Act? What the likelihood is for an Infrastructure Spending Bill passing this spring? What is its potential impact? Do you think NAFTA will be renegotiated or terminated? What do you think will happen in trade with China? What about the rest of Asia? Will the U.S. be able to negotiate bilaterally with EU Members? What will happen to the price of Oil as the U.S. secures its energy independence? Will the U.S. fulfill its potential to become the largest exporter of Coal, Natural Gas, and Oil?

Conservative expectations for all the outcomes questioned are positive. How will you keep yourself best positioned to stay ahead of price movement? The answer is not waiting for 3rd parties to tell you what to think and why. Fire up your curiosity. It’s fun and it’s not that hard to find the answers. Heck you can ask your smart phone questions by voice.

Most importantly give yourself credit for your ability to reason. If you take the time to become clear on the information most relevant to your objectives; and validate the data points you select, then you will keep making better, faster decisions so you can outperform the market.