When the GDP Report looks like Macys

GDP was a DOG

David B. Armstrong, CFA Weekly Market Commentary

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According to the just-released first round of data on the first quarter’s (Q1) Gross Domestic Product (GDP), which is considered the gold standard for the measurement of goods and services, 2017 has pretty much sucked.

It looks like GDP growth slowed from Q4 2016’s annualized pace of 2.1% to 0.7% in Q1.

Remember, that’s the first announcement of preliminary data…but still. Poopy pants.

A quick summary is that there was a significant increase in spending by businesses, BUT, that was more than offset by a sharp slowdown in consumer spending. In fact, the 0.3% annualized rise in consumer spending was the slowest since 2009.

We can pick the report apart, but as I have written about in previous years (for example, see A Review of First Quarter GDPandAre Things Getting Better While The Market Sells Off?),  there is evidence that there are peculiarities in the models that seasonally adjust each quarter’s data. This has resulted in significant underperformance in Q1 going back over 25 years.

That means we should expect a Q2 bounce.

But still…it was a lackluster report.

Let’s check out more of a bigger picture. The chart below highlights annual changes in GDP going back to 1930.

GDP Annual Percent Change


Here’s what you should notice – ever since the 2008 recession ended, we have not had one year when annualized growth has exceeded 3%. That has not happened going all the way back to the 1930s.

However, the major stock market indexes are near or at record highs.

My opinion? This is ALL about corporate profits and low interest rates, which offer less competition for stocks. Mom – this means that interest rates at banks, and for CDs and even bonds are SO LOW that you figure, “What the heck, I may as well be in the market where I’ll get some possible growth and some dividends.”

Companies have done a good job managing their bottom lines, and Q1 is no exception. Revenue is growing too. More on that below.

Despite the weak GDP report, many of the larger industrials, which do a significant portion of their business overseas, have raised full-year forecasts…which also suggests the global economy is accelerating. More on that below, too.

Anticipation of faster growth is driving the equity markets higher. That’s what’s happening.


As it stands, Q1 earnings look strong, even as GDP was not. Let’s see how things go when the major retailers report over the next couple of weeks. See these charts from Bespoke and my scribbled thoughts.

All I can say is…IMPRESSIVE.

Impressive Earnings Reports

Some Random Thoughts

I’ve been collecting some charts and scribbling…I’ll let the charts do most of the talking this week.

It’s nice to see France and others ticking up lately…I don’t think many people know how poorly the markets have been doing for 10 years. From Bespoke:

US Germany France Japan ETFsFrom the Department of Indexing, I captured this gem, below. It took the NASDAQ 6,256 days to print a 20% return. Yet I remember getting started in the business and people saying “I can beat most managers by just buying the QQQs!” (Mom – that’s the ETF that tracks the NASDAQ.) Man, who DIDN’T love 1999. Maybe the shorts…anyway, this chart is from Bespoke (they have some great charts, I can’t help myself).

Nasdaq Composite

This chart below is from Dorsey Wright. (Sorry for the chicken scratch typo… I circled the years but look to the left for the days, specifically the 6,256 days.)

Landmark Levels

Speaking of the good old days…anyone remember when Exxon, GE and Walmart were the big market cap names in the S&P 500? Yeah…They aren’t anymore. Another one from Bespoke below.

30 Largest S&P 500 Stocks

Final Thought

I’m constantly hearing reasons why the bull market’s end is near…I can remember them all the way back to 2012. But the amazing thing is that this market has been able to shrug it all off for years.

Looking back, the biggest event during the first quarter was Trump taking over as President. Investors were hopeful that tax reform might be on the way and there was also hope that the repeal and replace of Obamacare would be a huge plus for U.S. stocks.

I can feel this raising the hackles of some readers – I get it. BUT, that’s what the market rally points to…there is a lot of hope.

However, then there was the failure to do anything meaningful with healthcare.

This is a very stark reminder that politicians love to say things and then get nothing done.

It is what it is and I don’t see any change on the horizon on that issue.

Here’s what I do know…it is very dangerous to mix your political views with your investment strategy. I remember many clients and friends convinced the world was going to stop spinning on its own axis because of one of Obama’s policies or another.

Eight years later, I’m hearing the same thing about Trump now…just from a different set of people.

The bottom line is that the market did extremely well under Obama and his policies. GDP and the economy…ehhh not so much, but you look at the score board and no one can argue that the market did well for the eight years under Obama.

I’m just sayin’.

Time will tell whether or not it will for Trump.

The point I want to make is that keeping your politics out of investing will help you see things much more objectively. Politics is a blood sport in this country which makes me very sad inside, but what makes me very happy is that I know of a lot of people that saw past politics and for the past eight years did well with their financial planning and their investment discipline and strategy.

Don’t turn investing into a blood sport.

Please call with questions.


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About the Author
David B. Armstrong, CFA

David B. Armstrong, CFA

David B. Armstrong, CFA, is a President and Co-Founder of Monument Wealth Management. Viewed as an industry leader in digital marketing and social media, Dave is the writer of Monument Wealth Management's weekly "Off the Wall" Financial Blog and Market Commentary. His expertise is frequently sought after by journalists and event coordinators. Visit his full biography here.

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