Friday Charts: The Three Most Important Market Forces in the Fourth Quarter
It’s Friday in the Wall Street Daily Nation!
For the newbies, that means it’s time to embrace the adage that “a picture is worth a thousand words.” I select a handful of graphics to put important economic and investing news into perspective for you.
This week, I’m dishing on the three most important factors set to move the markets as we kick off the fourth quarter on Monday – GDP growth, earnings and politics.
So pop in that dusty ‘N Sync CD and say “Bye, Bye, Bye” to the long-winded commentary and “Hey, Hey, Hey” to some pretty pictures and quick-hit observations.
No Soup – or Growth – for You!
Doing its best Soup Nazi impression, the Commerce Department released revised GDP figures yesterday. The result? No growth for you! Not today or tomorrow.
The U.S. economy only expanded at an annual rate of 1.3% in the second quarter, down from the previously reported 1.7% rate. For the third quarter, economists only expect 1.9% growth.
Don’t overreact and bail on your U.S. investments in favor of stocks in faster growing economies, though.
Why? Because the belief that rapid GDP growth leads to, or is a requirement for, ridiculously high stock market returns is total bunk. (See here for proof.)
And, of course, because growth everywhere else sucks, too. I say that based on the collapse in year-over-year growth for major exporters.
Nothing Really Matters… Except Earnings
GDP growth isn’t the only thing tanking. So are earnings expectations for the third quarter. After originally predicting year-over-year growth of 3.8%, analysts now expect a profit decline of 2%.
I know. I’m serving up nothing but depressing news. But don’t pop a Prozac just yet.
As we well know, analysts have an uncanny knack for overestimating. Or, more bluntly, for being wrong! Thus, the latest projections could end up being too pessimistic.
If that’s the case, and earnings check-in ahead of the lowered expectations, look for stocks to keep rallying.
Stocks could really soar if companies confirm the current guidance for a turnaround in 2013. You see, although profit growth is expected to decelerate this year, next year we’re supposed to return to double-digit growth.
Politics: An Unexpected Tailwind
As I’ve shared before, we can’t overlook the fact that 2012 is a presidential election year, either. The stock market loves elections. And this year’s performance remains on a shockingly similar path to previous election years.
Take a look:
You’ll notice that October could be a volatile month, based on history. But in November, after the election and uncertainty is removed, stocks tend to rally.
Bottom line: Among many other things, the outcome of the election could decide the fate of the stock market for the rest of 2012. No pressure or anything. Just choose wisely when you vote.
That’s it for today. Before you sign off, do us a favor. Let us know what you think about this weekly column – or any of our recent work at Wall Street Daily – by sending an email to firstname.lastname@example.org, leaving a comment on our website, or catching us on Facebook, or Google+.
Ahead of the tape,