Stocks have been on a tear in the last few sessions and the trend will likely continue in today’s session as well, with the extremely positive GDP report adding to market sentiment.
The Dow Jones Industrial Average has gained in excess of 5% in the last four sessions — the index’s best performance since 2008. The Fed’s ‘patient’ statement has really given stocks a boost, with the S&P 500 index on course to finish the year on a strong note. Unless the final few trading sessions produce a major sell off, the index will end the year in double-digit territory for the 3rd year in a row.
Adding to the unusual nature of this year, three of the top four performing sectors this year have been defensive: healthcare, utilities and consumer staples (tech is the 4th one). There is plenty in today’s strong GDP report to sustain the positive momentum in these final sessions of the year.
On the data front, this morning’s Durable Goods report was weak, both on the headline as well in its internals. But the Durable Goods disappointment is more than offset by the eye-popping +5% GDP growth number we got for Q3 in the final look at that quarter’s growth rate. This is the highest GDP growth rate that we have seen since the third quarter of 2003.
The expectation was for Q3 GDP growth to get revised from the second look’s +3.9% pace to +4.3%. As you would imagine, all of the report’s internals improved, with consumer spending up +3.2% (vs. +2.2% previously), business spending up +7.2% (vs. +5.1%) and government spending up +4.4% (vs. +4.2%).
On the spending front, spending on goods increased +3.2% vs. the second look’s +2.2% growth, while spending on services increased +2.5% vs. the second look’s +1.2% growth rate. GDP growth is expected to moderate in the current period, with Q4 growth expected to be roughly half of what we got today for Q3, with less government spending and reduced inventory investments weighing on the growth pace. But the expectation is for the growth picture to ramp up materially next year.
This data reconfirms what we have known for some time – that the outlook for the U.S. economy remain one of the best in the world. No doubt the U.S. Fed is getting ready to start raising rates while other major central banks are still in easing mode. It is this growth divergence that has been driving the exchange value of the U.S. dollar and the momentum in U.S. stocks.
