GDP Surprise to Have Staying Power?

Pre-market futures sprang nicely higher as the GDP data rolled across the screen. The headline showed that second quarter GDP stands at +1.6%. Yes, that is below the initial +2.4% read. But it is nicely above the Street estimate of +1.3%.

There were some other nice pieces of data below the headlines. In particular, final sales were revised higher, as was the GDP price index. That latter piece helps make the case that deflation is at bay…at least for now.

So now the key question is: Does this morning’s bounce have any staying power? If I had to make a bet now it would be no…it won’t last in the short run.

Why? Because we have firmly entrenched players in the double dip/deflation/Japan lost decade/depression crowd. And they will not have their minds changed by today’s report. Instead they will just say, “Hey, GDP is still slowing down. The 2nd half of the year will look even worse.”

I’m on record as being an advocate of the New Normal/Muddle Through Economy. But that does not mean that I am not wary of us sliding past slow growth into no growth into negative growth. Today’s report does help my case…but unfortunately not at the expense of disproving those in the double-dip camp.

So until 3rd quarter earnings season and GDP comes around to give a fresh read on where we stand, then I think the bears will be in control of the market. And right now I don’t think they will be happy until the lows of early January are tested around Dow 9600. At that point my fellow Muddle Through’ers should say “enough is enough already” and buy up stocks at attractive prices.

By Steve Reitmeister

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