Third Quarter GDP Release
The Commerce Department released their initial estimate of GDP for the Third Quarter this morning, and it exceeded market expectations. Gross Domestic Product grew at an annual rate of 2.9% in the Third Quarter, which was the strongest quarterly gain since 2014 and follows 1.4% growth in Q2. Market economists expected growth to come in around 2.6%, and much of the surprise came from an increase in exports and buildup of inventories during the quarter. Although this report further suggests a low probability of recession in the near term, it was not strong enough to push expected GDP growth rates above 3%. Consequently, the economy continues to grow at a 2% annual pace since the recovery began back in 2009.
There were some encouraging signs in the report, as the economy experienced an uptick in business and government spending during Q3 which were detractors to growth in prior quarters. However, we did see a slight slowdown in overall consumer spending, as personal consumption expenditures rose 2.1% versus an expected increase of 2.6%. Still, spending on long-term durable goods such as appliances and automobiles rose above 9% for the second straight quarter, which was better than expected. Another area that was weaker than expected was spending on home building and improvements, which fell for the second consecutive quarter after being a driver growth for the past several years. However, after hitting a 50-year low over the summer, the nation’s homeownership rate rose to 63.5% in Q3 with over 1.1 million new households forming in the quarter. More importantly, over half of this number were owners rather than renters, an important factor needed for the homeownership rates to rise. Therefore, although we have seen a decline in residential investment in GDP figures over the past two quarters, this may be short term if homeownership rates continue to increase off historic low levels.
A quick update on earnings, this was a busy week for the S&P 500 Index as almost a third of the companies in the index reported earnings this week. As we reported last week, approximately 80% of companies who reported earnings were beating expectations. This trend continued this week as now 290 of the 500 companies in the S&P 500 Index have reported earnings so far for the Third Quarter, with nearly 80% beating their estimates and reporting higher profits. It is looking more likely that it will be enough to break the five consecutive quarters of declining earnings.
The Q3 GDP initial release along with better than expected earnings supports the expectation that the Federal Reserve will raise their benchmark rate this year. However, we still believe this may create some uncertainty as traders assess the potential for a rate hike, which could result in periods of market volatility especially coupled with the upcoming presidential election. Although we view this as a positive scenario for the equity market over the long term, we have maintained higher than normal cash balances in client portfolios given the level of uncertainty. We will continue to monitor the current environment and deploy cash as we see opportunities to invest at more attractive levels.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bouchey Financial Group, Ltd. [“Bouchey Financial”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bouchey Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Bouchey Financial’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Bouchey Financial is engaged, or continues to be engaged, to provide investment advisory services. Bouchey Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bouchey Financial’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.bouchey.com. Please Note: Bouchey Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bouchey Financial’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bouchey Financial client, please contact Bouchey Financial, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.