The bears have been steamrolled over the last two months and any of them hoping for a fall after a lackluster GDP report were sorely disappointed. I know the frustration of the bears as I have dabbled with some bearish ETF’s lately, but not too big because I know the momentum that can be created by the tidal wave of cash that the Federal Reserve is throwing at this market. That is all that matters right now.
Lackluster Report
The government released advanced third-quarter GDP last Friday which came in at 2%, slightly less than expected. If anything, the weaker number was good for the market because that means the Fed’s quantitative easing program is a go. If the report was much hotter than expected, I think the market might have sold off because it would have given the Fed something to think about in terms of the necessity of pumping the system full of money.
There were some positives in the report that investors keyed on however. Consumer spending was relatively healthy in the quarter, adding about 1.8% to the growth rate. This is the most crucial part of the report since consumer spending accounts for over 70% of Gross Domestic Product. However, it is worrisome that we are still this dependent on the consumer in a time of economic peril where frugality rules the day.
Looking at the bigger picture, 2% growth will not cut it as it isn’t high enough to lower the unemployment rate by any means. We will need much higher growth just to keep the unemployment rate from going higher, let alone making it come down. However, investors already knew this, so they didn’t let that bother them into selling their stocks.
All About the Fed
This week, there is a crucial Fed meeting where the quantitative easing program known as “QEII” will likely be officially announced. Will investors use this as a “sell the news” event? The bears sure hope so, but Wall Street is littered with bears flat as a pancake as they continue to get smashed by exuberant bulls.
Don’t forget about the midterm elections on Tuesday as well. A decisive Republican victory has also made the bulls excited as they are looked upon as the more business-friendly party. Nobody knows how the market will react even if the GOP thumps the Democrats. From what I have been reading, a lot of market participants are expecting the market to correct after all this news is out, meaning that further upside could be in store. The market is good at making the consensus look foolish. Whatever happens, listen to the market no matter how irrational you may think it is.
GOP and GDP, Oh My! is an article from: 
