As of the close today, October 29, the Standard & Poor’s 500 was up “just” 1.17%. (The NASDAQ Composite had gained 1.64% and the Dow Jones Industrial Average had picked up 0.52%)
I say “just” because after yesterday’s 3.53% drop in the index that move today is a relatively restrained bounce.
Especially after today’s headlines trumpeting an astonishing 33.1% annualized growth rate for the U.S. economy in the third quarter.
Here’s an actual headline from Argus, a widely syndicated research service: “GDP Rebounds 33% in 3Q”
The article that accompanies that headline begins “U.S. GDP expanded at an astonishing 33.1% rate in 3Q20, as the economy rebounded from a coronavirus-driven 2Q20 plunge of 31.4%. As expected, personal consumption expenditures led the recovery and expanded by almost 41% in the quarter. Spending on durable goods jumped 82%, while spending on services and nondurable goods grew 28% and 29%, respectively. Investment into equipment rebounded with 70% growth and housing investment increased 59%. Exports soared 60%, driven by a doubling in exported goods.”
Now, as I pointed out in a warning post yesterday, the economy didn’t actually grow by 33% in the quarter. That figure represents a projection by the government’s Bureau of Economic Analysis. The statisticians there look at the quarter to quarter change and then project it out as a growth rate over the entire year by multiplying by four.
U.S. GDP actually grew by 7.4% in the third quarter from the second quarter. That indeed amounts to a 33% annualized growth rate–if you assume that the economy will grow at the 7.4% rate from the third quarter for the next three quarters as well.
That’s a dubious assumption given all the current evidence that the economy is currently slowing in the absence of a new coronavirus stimulus package–the failure by Congress to pass new coronavirus stimulus will certainly take a big bite out of that (annualized again) 41% growth in consumer spending projected for the year from the third quarter results.
The economy, even after today’s report, is 3.5% smaller at the end of the third quarter than it was at the end of 2019 before the pandemic began. To put that in context, U.S. GDP fell by 4% over the entire 18 months of the Great Recession 10 years ago.
Stocks that tumbled yesterday did rebound today although most hadn’t made up all their prior day losses as of 3 p.m. today.
Apple (AAPL), for example, was up 3.71% at the close today after losing 4.63% yesterday. Microsoft (MSFT) was up 1.01% today after plunging 4.96% yesterday. MGM Resorts International (MGM) had gained 5.92% today versus a 4.47% loss yesterday.
Given that tomorrow is a Friday and nervous investors and traders often seek to sell before a weekend–especially when there’s a good chance of market-moving news in that period (there’s an election on November 3, remember), it will be interesting to see whether buyers or sellers emerge to lead the session.