Suddenly Things Have Gotten A Little More Interesting In The Market

The market has gone nothing but up all year.

And yet suddenly we’re on a 5-day down streak.

Not only that but we’ve gotten a string of good economic data, which has put the Fed sharply back into play, while raising hopes that just perhaps the great “liftoff” is finally here.

Mike O’Rourke of JonesTrading has some good commentary on this:

We have to admit the developments this week have been rather exciting. After being trapped in a Groundhog Day environment for so long, it is noteworthy when different patterns emerge. Let’s start with the preliminary Q3 GDP revision released this morning. The 3.6% annualized growth during Q3 is an impressive headline print. The ISM reports have foreshadowed the improvement since the summer. Similar to the data released yesterday, the internal composition of the GDP report left a great deal to be desired. Approximately 70% of the growth came from an inventory build. The other problem was that as inventories were built, Personal Consumption Expenditures began to fade and posted its weakest growth since 2009.

The positive here is that the Federal Reserve is finally on track to have one of its forecasts come to fruition. A second half recovery in GDP is in the works, it is up to Q4 growth to make it a reality. It is imperative that the consumer resurges in Q4 to whittle the inventory down. One of the worst possible combinations of data in Q4 would be further consumer retrenchment in the face of a huge inventory build. The unimpressive start to holiday sales is no secret, but the resurgence of Auto Sales is notable. As it stands now, it is a tough call. One can see that it is best GDP reading in 1 ½ years. Regardless, it only sent bond yields mildly higher. This is an indication that the market recognises this strong GDP print represents an equal amount of risk and reward. Personal Consumption in Q4 will decide which side wins.

Just when you were starting to get bored, we have some storylines again.

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