The Bear That’s Been and Gone
In a continuation of the trend of recent years, the actual GDP reporting process arrived at a smaller number than the individual data reports suggest.
Maybe we’re suffering here from the law of large numbers - the larger a number gets, the tougher it is to make it grow consistently.
But what items helped and hurt that figure in the latest 90-day run?
First, while everyone is asking where all the consumers have gone - you could assume by the GDP number that they’ve disappeared – you’re better placed to wait-and-see. That’s what I suggested around the New Year, when I wrote: “Do not expect it to all go smoothly - it never does - and this time around the press will make sure that is the case."
Last quarter Real GDP expanded at its slowest pace in three years, dragged down by the slowest growth in consumer spending since 2009.
And the antiquated reporting process from the government tells us the US economy grew just 0.7% (saar) during Q1, slowing from 2.1% and 3.5% the prior two quarters.
Note: The slowdown in real consumer spending was led by only the second decline in durable goods consumption over the last six years.
The plus side here is that real capital spending was very positive, accelerating 9.4% and showing the best growth since Q4-2013.
Residential investment surged 13.7%, following a 9.6% advance during Q4, which followed two quarters of decline.
Also, the trade gap narrowed slightly as exports grew faster than imports.
So don't be surprised to see consumers bounce right back as the Trump agenda begins to find its footing in Q2 and Q3. And let us not forget that none of this includes what will eventually become the surge in benefits from the tax act impact - even if it is implemented in 2018.
Keep in mind, for market analysis purposes, by August the focus turns to 2018 numbers anyway.
And at this pace, August will be here by tomorrow.
One final thought on GDP reporting. I stand by the idea that a few years from now our economic activity will have become so advanced, and from so many new sources, that the old ways of reporting it simply won't capture what’s going on.
Let's Take a Breath
One third of the year is already in the books.
And, as always, we have churned from one issue to the next.
Just remember to step back and be patient and disciplined, and stay focused on the long-term.
For those fretting over what will cause the next bear market - or suffering through the mistaken fear of an expensive market chopping around just under all-time highs – the makers of the world’s supply of TUMS antacid tablets thanks you.
Oh, and here’s the real surprise: We already had a bear market.
We covered this while all of the "worst start for the markets in over 80 years" tantrums were going on at the beginning of 2016 (that was just last year, folks).
Even so, I remain rather surprised (but comforted in a contrarian sort of way) that many experts choose not to highlight this stuff.
While the markets overall were flat for 2015, if you had put all your capital into the largest ten companies in the U.S. stock market you would have ended up making about 20% on the year!
And if you happen to be one of the unlucky schmucks who bought into this ETF craze - and held the other 490 companies in the S&P 500 instead - you were actually down about 3%!
That’s right, over 80% of equity mutual funds were in the red for the year.
Now, it was our view that this period ended in the ugly bear attack as 2016 dawned - with lows hit on 11th February. Overall, what many missed (when looking outside of the 10 tops stocks) was that S&P 500 stocks were then down an average of 26.7% from their 52-week highs!
The Russell 3000 participants were down a shocking, but rarely referred to 37.3% on average from their highs.
So I’m happy to stand toe-to-toe with anyone and argue that was the “bear market” everyone keeps fearing today.
And the new young bull is just getting its legs.
By the way, I get it. I know it sounds like faulty thinking since the S&P 500 as a whole was down “only” about 15% from its previous all-time high instead of the somehow sainted and required 20% reading that marks a bear.
The truth is that the 10 biggest stocks were actually hiding the bear, and because they held up it gave no relief to those still fearing high prices.
All I suggest is that you take note of this the next time someone gets on air and spouts more doom and gloom, Armageddon type chatter and suggestions that scare the crap out of you.
The investor herd is so far from “euphoric” or “irrationally exuberant” that it's not even funny.
Two Lessons Learned
One: "Group Think" is a loser’s game. Don't play.
Two: We already had the bear market everyone is certain is coming.
Pray for a correction, folks, and one again; think demographics not economics.