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Rally May Find Headwinds in GDP Number

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)
Tomorrow the first estimate of Q2 GDP for the U.S. comes out. The current forecast is for -1.5% growth in GDP. It is possible that this could be the number. However, it seems likely to me that the number will be significantly worse. The Q2 earnings are likely coming in at -25% or worse. I have seen some estimates for -33% to -34%. This is not a small loss in overall earnings. It will not likely result in a small negative GDP number (rather a larger negative number -- contraction). Add to this the fact that the inventories data has been negative most if not all of the quarter. We know that the automakers closed a lot of car dealerships in Q2. Certainly those no longer existent dealerships cannot have any inventory. The manufacturing data has also been generally down during the quarter. Plus the airline industry has been in trouble. Customers are asking for delays on plane orders, which may actually suit Boeing. Boeing can’t ship its 787 Dreamliner yet due to continued problems with its development. Adding to the negativity is the Swine Flu. This is keeping people away from airlines. When autumn comes, it will likely keep even more people away.
All told the GDP number seems likely to be much worse than the current prediction. It doesn’t seem likely it could be much better. The play tonight is to play the market to the downside. Unless they cook the numbers, the numbers would seem to have to be worse than the prediction. There is some possibility part of the negativity could be delayed. Some of the extra car sales as a result of the dealership closings could prop up numbers temporarily. However, that fact would likely also come out in the guidance. We know what guidance can do to stock price. Plus the specter of a "real" Swine Flu pandemic in the fall may well be noticed at this point. The GDP would seem to be the ideal vehicle to draw attention to it.

The markets have come very close to their magical short term number of $100 on the SPY. A retreat in the face of reality seems extremely likely. Even the most strident bulls admit that the market is getting over valued. A retracement is needed, if only to bring some sanity to pricing. The GDP may be the catalyst.