Stocks soar despite anemic GDP

As the first quarter ends Friday we see that while sentiment has exploded, economic growth is muted.

On Thursday the feds released the third revision (not the final revision since it will be changed again and again) of GDP for the final quarter of 2016 and the year.

The latest revision of Q4 showed growth of 2.1%, which was two bps higher than the 1.9% in the former reading released last month. But for all of 2016 the US GDP growth was only 1.6%, which demonstrates the lackluster growth over the eight years of the Obama administration.

The Obama administration is the first modern presidency since President Hoover not to have a 3% annual GDP growth during its terms.

Fast forward to today, we will not get the first reading of Q1 2017 until next month, but let’s look at the equity markets. The Dow Jones industrial average is up nearly 5% for the year, while the broader S&P 500 is up 5.8% and the Nasdaq is soared 9.9% doubling the Dow.

By comparison the Nasdaq was only up 1.3% for Q4 2016, the S&P 500 grew 3.2% and the Dow rose 8% over the same period.

So the question to be answered is, which is driving the economic bus, consumer sentiment at a 10-year high leading to equity prices soaring? Or are higher stock prices driving sentiment?


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