From Dan Greenhaus at BTIG, some very interesting perspective on Q3’s awful market performance.
Today’s durable goods report is just the latest in a series of data points that suggests the economy was not so terrible in the third quarter. Indeed, with a little bit of good luck, the Q3 GDP print might come in at 2.5%, hardly a robust rate of growth but certainly not a recession. Shipments of nondefense capital goods excluding aircraft rose by 2.8% suggesting business spending growth for the quarter will probably top 15%. That’s not too shabby.
In fact, since 1970 in quarters in which real GDP growth is more than 2.5%, the S&P 500 increases by 2.84% (unannualized) on average. In Q3 2011, if the S&P finishes the quarter around 1,160, the index would have declined by just over 12%. With the exception of Black Monday in 1987 (Q4), no quarter in which real GDP grew by more than 2.5% would have seen worse equity performance than this one. Even if we assume GDP growth of at least 2.0% in Q3 (S&P 500 average gains of 2.78%), the 12% decline for the S&P 500 would be the third worst (after Black Monday and Q2 2002). We do of course have two more trading sessions to change this reality.
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