I Unwrapped That GDP Report ... Too Bad It's Nonrefundable
Let's take a close look at the gross domestic product report to find out why it's missing some pieces.... Also, my present to you: my five rules for investing.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Christmas in Hollis
Rhymes so loud and proud, you hear it
It's Christmastime and we got the spirit
Jack Frost chillin', the orchids out
And that's what Christmas is all about
The time is now, the place is here
And the whole wide world is filled with cheer
-Simmons, McDaniels, Mizell (Run-DMC), 1987
Good Morning
Being a native of Queens, I thought we'd start today off with the holiday classic released in 1987 by fellow Queens originals, Run-DMC. Though I was already an adult when this tune was released, my children always got a kick out of playing it when they were young. For those trying to make a buck today, the word is to be careful. When I was younger, I tended to put myself out on a limb, taking on more risk than I probably should have in an attempt to make up for holiday-shortened weeks.
I know it's tough not to do so. We all have those numbers in our heads. How much we have to average per day for the week or really for the month. Less days? The average goes higher. Fail to meet that number for a day or two. The average goes higher again. Suffer a red candle day or three or four? The number can get out of control, especially when the calendar throws unwelcome days off at us.
I say "unwelcome," because for those who work without the safety net of salary or paid time off, these days do present obstacles. It's nice to take time off, I just had to in order to move my home and office, but time off has to be budgeted for. As we close in on the end of a month, quarter or year, the tendency is there for those living off of a profit/loss, or off of commission to press hard. When we press hard, especially when the trading volume is light, we can make mistakes.
Being one of the older folks on Wall Street, I have a perspective that maybe some of my younger colleagues may not yet have. I have been a young star in the firm. I have been a middle-aged trader trying to figure out how to remain relevant as market models changed more quickly than I did. I have been the older trader who experienced a renaissance in his career at an age when others were planning for retirement.
It is difficult to wait for opportunity, but opportunity has a way of presenting itself, often when and where one was not looking. I am not saying that one should not try to create or look for opportunity. Work ethic is the cornerstone of this business, and one should always do those things. The trick is not trying to force opportunity when one is feeling the pressure and that door is just not opening.
Amid Market Madness, Have a Method
It helps to have a method. I usually publish my five rules for success in this job during times of crisis to help readers, traders and investors when they are shaken. I'll repeat them here for Christmas. My long-time followers are already quite familiar, but it never hurts to be reminded:
1) Understand: Everything done is done for a reason. No gambling.
2) Identify: All avenues of approach, perceived threats, and targets of opportunity.
3) Adapt: Evolve as does the environment. Become what is required when it is required.
4) Overcome: Never surrender. Find a way even in the face of persistent failure.
5) Maintenance: Carry on with the mission.
Those of you who served, will recognize the skeleton of a basic five-paragraph order. What they drilled into your brain when you were a kid, was at least for me, the key to success in leadership, in finding ways to handle stress and in getting things done.
A Quirky GDP Report
The Bureau of Economic Analysis on Tuesday released its initial estimate (quite late due to the government shutdown) for third-quarter gross domestic product. The headline print was astonishing. According to the data, GDP for the third quarter landed at growth of 4.3% (q/q, SAAR), which was much stronger than what was the consensus view for growth of 3.2%. All good, right? Well, much better than a sharp stick in the eye, but there are problems under the hood.
First and foremost, gross domestic income landed nowhere near growth of 4.3%. I went through this a couple of years ago when a positive GDP covered up a negative GDI, when the two measure the same economic activity and are supposed to end at the same totals. Somehow, GDI rang in on Tuesday at growth of just 2.4% for Q3. The Fed has always suggested that when there is a sizable discrepancy between GDP and GDI, they two should be averaged in order to find a more accurate rate of economic growth.
That would put Q3 economic growth at 3.4% q/q, SAAR. The financial media completely missed that in 2022 and as far as I know, they missed this again yesterday, unless I missed them catching it. Even 2.4%, though, would have been considered above average growth during the post-Global Financial Crisis period. That said, were there other problems?
While personal consumption expenditures still contributed mightily, growing 3.5% in isolation and adding 2.39% to the 4.3% headline number, disposable personal income dropped to "growth" of 0.0%. Federal spending grew 2.9% in Q3, the first quarter of increased federal spending since the inauguration. This was supported by a 5.8% increase in defense spending. Non-defense federal spending printed at -1.1%, for a third consecutive quarter of contraction. Net exports of goods and services were the second strongest component to this GDP print, contributing 1.59% to that 4.3% headline on incredible export growth of 8.8%.
So, while this is undoubtedly a strong report, there are some holes in the numbers. I really wish we could get GDP and GDI to run alongside each other. Sister Marianne would have threatened to fail me (or the BEA) in 11th grade trigonometry if I (they) couldn't prove my (their) work. Sister did threaten. That's a story for another time. The disposable income item (line 34 on table 1 if you're following along.) is a problem. While disposable income did grow 2.8% in current (unadjusted) dollars, the quarter's personal consumption expenditure price index was up 2.8% and the quarterly GDP price index was up a scary 3.7%.
Markets & Breadth
Markets were more or less quiet on Tuesday. The S&P 500 gained 0.46% on the session to close at an all-time record high. The Nasdaq Composite added 0.57%. Those gains came at the expense of the small to mid-cap crowd as the Russell 2000 surrendered 0.69%. That weakness skewed breadth to the downside.
Six of the 11 S&P sector SPDR ETFs closed in the green as cyclicals and growth outperformed defensives. Energy (XLE) was the winner followed by Communication Services (XLC) and Tech (XLK) . The Staples (XLP) and Health Care (XLV) brought up the rear, but no single fund among the eleven gained or lost more than 0.66% on Tuesday.
Losers beat winners by a seven-to-five margin at the NYSE and by a rough three-to-two at the Nasdaq. Advancing volume took an even 44% share of composite NYSE-listed trade and a 41.2% share of composite Nasdaq-listed activity. As for aggregate trade, activity was up small from very low levels on a day-over-day basis across Nasdaq-listing and down sharply (from very low levels) across NYSE-listings.
Remember That Double Top?
That's not a double top pattern of bearish reversal at all, is it?
Check this out:
We have an ascending triangle pattern of bullish trend continuance on our hands, don't we, gang? The pivot stands at 6,903. The S&P 500 closed last night at 6,909. Folks, we get a take and hold at this level and Santa may just be in business. Ho, Ho, Ho!
Note to Readers
Merry Christmas to those that believe what I believe. Have a very nice day and half off for the rest of you. Either way, I hope you all get to spend some quality time with those you love. God bless, and God willing, Market Recon will return on Friday Morning.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.38%.
07:00 - MBA Mortgage Applications (Weekly): Last -3.8% w/w.
08:30 - Initial Jobless Claims (Weekly): Expecting 222K, Last 224K.
08:30 - Continuing Claims (Weekly): Last 1.897M.
10:30 - Oil Inventories (Weekly): Last -1.3M.
The Fed
(All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights
(Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publication, Guilfoyle had no position in any security mentioned.
