With the Dow and the Nasdaq hitting all-time highs this week, the bears need to be cautious as this big surprise may send stocks screaming higher.
January 23 (King World News) – A portion of today’s note from legend Art Cashin: A Big Surprise In GDP? A Wise Man Says It’s Possible – Joe Lavorgna over at Natixis, weaves an interesting tale about a possible surprise to the upside in GDP. Here’s a bit of what he wrote:
Retail control is a subsector of retail sales and is a direct input into the GDP accounts. This demand-side metric grew at an annualized 8.9% nominal rate last quarter. This was the biggest increase since Q3 2003 (10.5%). In inflation-adjusted terms, the gain was 5.2%, the largest increase since Q4 2014 (5.8%).
At the same time, the index of aggregate hours, the product of the nonfarm workweek and private employment and supply-side metric, expanded at a 2.5% annualized pace last quarter. This was up from 0.8% in Q3 and represented the second strongest quarterly gain since Q4 2014.
Combined, retail control and aggregate hours point to real GDP above 4%. But, history suggests that after natural disasters, rebuilding efforts typically add on average one full percentage point to real GDP growth. Hence, a number around 5% is possible, although it may not happen on the initial GDP print.
It must be noted that there will be three revisions to the Q4 2017 GDP data following its initial release which is scheduled for Friday—one next month, another in March and then a third in July. However, the current government shutdown if extended another day or two is likely to delay the release of this Friday’s GDP report.
Finally, we caution investors that an economy that appears to finally be firing on all cylinders may bring a more aggressive Fed into play. This could bring about a wobble in risk assets which have benefited from excess liquidity.
If the GDP does come in with a 5%, we can just imagine what the President will be talking about for the next few months.
Overnight And Overseas – In Asia, stocks rallied strongly across the board overnight. A partial influence was rather dovish sounding comments from Kuroda. Tokyo and Shanghai rallied the equivalent of 335 Dow points. Hong Kong was up an even better 435. India had a nice rally but not quite on that order.
European markets are all seeing rallies but on a far more modest gauge. Frankfurt was the leader but up only about 85 Dow points.
Among other assets, gold is up a bit and continues to push against the upper band of the resistance that it has been battling. Crude is fractionally higher as traders await a possible jump in inventories after the close. The euro is flat against the dollar and yields are down a tick or two.
Consensus – Overnight futures strength fades as dawn reaches Manhattan. Form chart suggests a consolidation day is in order after multi-day run.
Stick with the drill – stay wary, alert and very, very nimble.
King World News note: This was the headline yesterday from Dow Jones that was highlighted everywhere in the mainstream media:
“GDP Growth Expected to Slow In 4Q”
The headline above was designed to psychologically prepare investors for a disappointing number. If Lavorgna is correct, it’s quite possible that stocks may surge even higher on the release of a big GDP figure, so short-term caution is warranted for the bears.
***KWN has just released the powerful audio interview with Egon von Greyerz and you can listen to it by CLICK HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Multi-Billionaire Hugo Salinas Price Just Predicted A Worldwide Disaster Is About To Unfold CLICK HERE.
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