A “Low Quality” GDP Report

We aren’t changing our view, no matter how unpopular it may be

Highlights

• Markets were unenthused by yesterday’s GDP numbers — equities saw a sell-off while bonds rallied

• The Conference Board “expectations” vs. “present situation” spread is signaling recession

• Softer Q4 guidance has been a common theme across the latest earnings announcements

• The ECB followed through on its pause, but markets are already pricing a cut by April

While We Were Sleeping

Well, what can be said when a +4.9% GDP number is met with a rally in bonds and a selloff in equities? Perhaps because it was priced in long ago and everyone knows that Q4 growth is likely to come in flat (i.e., there is no momentum in capex heading into this quarter and we know housing is going to be a huge drag). Today’s WSJ runs with What Will the Economy Do for an Encore, seemingly oblivious to the fact that every recession sees one blowout quarter right before the downturn occurs — on average, within two quarters of the recession, we see a real GDP growth figure come in just above a +5% annual rate — call it the boom before the storm. A reflexive pick-up that serves as a head-fake.