Stocks are rising on good news, but also on mediocre news…

Equity markets are thriving as good earnings reports send important companies higher. The S&P has risen +.64% so far, having finally gained the momentum to break further away from the $3,000 sticking point.

It seems obvious that good earnings would send stocks higher, but the more interesting news is the event that is arguably driving markets the most, but didn’t really impress anyone. This event is the announcement of Q2 GDP.

At +2.1%, Q2 GDP just barely beat estimates thanks to an impressive increase in consumer spending (up +4.3%). Government spending at all levels contributed to the sustained growth, but the rest of the pillars of GDP saw mild declines, led by private sector investment and net exports.

In my opinion, the GDP hit the nail on the head perfectly. Considering the looming Federal Reserve decision, a stellar GDP performance would have decreased the chances of a rate cut. This would have been extremely negative for markets, despite the obvious positivity provided by the strong economy. Conversely, if GDP has missed estimates by a wide margin, additional fear may have driven markets downward despite the increased probability of a rate cut. Instead of doing either of these, the GDP for Q2 met estimates almost exactly. This kept the Fed on edge while assuaging the general fears of the investors.

To wrap up, we at PIR are preparing for a rate cut from the Fed on July 31, pushing the bull market forward through Q3 and into the Presidential Election season.


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