Today’s GDP report was better than others expected. I say others because we’ve been pounding the table on the economy for months. And guess what? It’s going to keep getting better for the next few months. We’ve been prepared for better than expected economic releases. I gave a speech yesterday and said that today’s report of GDP would be important.
The GDP growth rate came out at 3.5%, better than the estimates. The stock market responded with some impressive gains a few hours after the report. By the time this recovery runs its course, we could see this number reach 5%. It’s not uncommon to get a better than expected recovery because you had a worse than expected contraction. As opposed to a lot of the reports that don’t mean much, this one is important as it pertains to stock prices. You can see below, as GDP growth rate goes (in red), so goes the stock market (S&P 500 in blue).
I described the wall of worry a few weeks ago that is continuing as I type. I’m reading a lot of commentary from people suggesting that this is a backward looking number and doesn’t mean much. It may be a lagging indicator but it certainly is correlated with stock prices. That’s all we care about. The doubters of this good report obviously haven’t done their homework. Luckily, we have.
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