Daily Alert – Thursday 26th January 2023: GDP in the Goldilocks zone
The main news today was US GDP. For Q4 (annualised), the figure was 2.9 percent versus an expectation of 2.6 percent. Now, you might expect that the markets would view hotter-than-expected GDP to encourage the Fed to press on with rate hikes and as such equities would fall.
However, some economic data is revised, especially GDP which is comprised of a lot of early estimates. The prior GDP number, Q3, was revised up from 2.6 percent to 3.2 percent.
So, what we saw today was actually a GDP drop to 2.9 percent from the prior 3.2 percent. This is a cooling of the economy and as such the markets see it as reason for the Fed to re-think their rate hiking plans. And that would cause equities to rise, as they are doing. Now this may all be confirmation bias by the markets, and there will be some of that, but the markets are never wrong. The market is behavioural economics, and it is what it is.
Tomorrow, we see the US Core PCE Price Index which is the Fed’s chosen measure of inflation. Now that can change things.
I’ll have a short video for you tomorrow of last week’s S&P500 trade.
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