Premature Top Calls Continue After GDP Report

Includes: DIA, IVV, QQQ, SPY
by: Jason Schwarz

The easy money has been made! That 3.5% GDP report was artificial! When the first time home buyer credit expires we’re doomed! Yes, it seems to be that time again. The bears are telling us that the rally is over. I first warned you about premature top calls when the bears came out in full force with the Dow at 8400 back on May 7th, then I warned you again with the Dow at 9500 on August 28th. Here we go again.

With the reaction to last week's GDP report you would have thought it was -3.5%. CNBC was full of experts doing their best to diminish the report because of the 2.3% contribution from cash for clunkers. I agree that cash for clunkers was a one-time event so let’s take it out. That’s what we do with one time events in corporate earnings reports. Let’s do it with GDP. What does that leave us with? My calculations show we’re still in positive growth territory with with 1.2% GDP and I don’t mind the fact that we had a hugely successful program that put money in the pockets of car salesmen nationwide. Take your ruler and place it along the 12 month GDP growth trend and you’ll see significant improvement from Q408, Q109, and Q209. The direction of economic recovery is still in place with or without cash for clunkers.

Worried that we’re going to double dip? Hope is on the horizon. Although consumer spending dipped -0.5% (again due to the expected drop off after cash for clunkers), personal incomes remained stable. Although the lagging indicator of employment continues to drop, this earnings season has showed us that corporate America went too far. Their rate of layoffs exceeded what was necessary. The financial crisis caused them to overreact. They reduced inventories at the fasted rate relative to GDP since World War 2. First Trust chief economist Brian Westbury says, “In Q4, we think the Great Destocking comes to an abrupt end, adding 4.8 points to the real GDP growth rate.”

It’s important to remember that this is what a bottom looks like. Some weeks the despair of the recession creeps back and other weeks the recovery appears better than it actually is. Economic timing trends show us that the overall recovery is still headed in a positive growth direction with annualized consumer spending up 1.2%. The recovery coming out of the worst recession in 80 years is a powerful cycle that not even the bears and their premature top calls can stop.

If you’re looking for increased conviction in your investment decisions, you need a sound understanding of the rate of change of economic data. is a great tool to utilize. Beyond the data we have also heard positive comments coming from the contemporary group of economic leaders: Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Costco (NASDAQ:COST), Nike (NYSE:NKE), JP Morgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), Blackstone (NYSE:BX), Nordstrom (NYSE:JWN) and Ford (NYSE:F). This black cloud hovering over the market is just a typical correction, nothing more.

Disclosure: Long AAPL