On Friday, 4/26 Advance GDP was reported for the 1st calendar quarter of 2013. The report came in at 2.5% vs. 3.1% expected. If you looked at some of the headlines that came out after the report; they read “US Economy Grows by 2.5 Percent” completely omitting the fact that this was way less than expected. Now unfortunately traders only view headlines without looking beyond it. So consequently they’re thinking “wow the US economy grew, let’s go long.” As such the Dow gained a whopping 12 points yet the NASDAQ and S&P didn’t.
I’ve been stating for some time that the effects of the sequester will eventually come home to roost, yet Wall Street is treating it as if it’s a famine in China; meaning that it’s so far removed it couldn’t possibly effect us. Has anyone been viewing earnings season thus far?
IBM, Apple, Amazon and others have not posted stellar earnings and these are firms that are considered tech bellwethers. Apple knowing that its earnings weren’t going to be stellar, decided to boost their quarterly dividends by 15%, all to no avail. Apple dropped and drove the Dow with it. When IBM reported, the same thing happened. The US economy is driven by technology; it is our “claim to fame” so to speak. If these firms aren’t reporting stellar earnings, what does it say for the rest of the industrial sectors? Case-in-point, Caterpillar Tractor recently reported earnings that weren’t too great and they are an industrial powerhouse.
This week we have the FOMC meeting on Wednesday and the monthly jobs report on Friday. Time will tell if these reports will serve to wake the investing community up and make DC realize that this sequester is nothing more than political grandstanding. Bill Clinton had it right in 1992 when he said “many of the problems that we are facing today can be resolved by a growing, thriving economy.” As I recall the Clinton years were pretty good economically. I just wish our current leadership was more cognizant of this fact by paying more attention to economic issues.