GDP Turnaround for the Ages

by | Sep 22, 2020 | Market Commentary

Market Uptrend Sustainable?

The stock market’s uptrend seems to be hanging there, while the Federal Reserve has made it clear that it will continue to pump liquidity into the banking system. At least $120 billion per month, which is a $40 billion increase from its recent easing. They also plan to keep interest rates near zero until 2023. So, despite the recent selling, history shows that under normal circumstances, this type of Fed action should be pushing the stock market higher. In other words, unless this time is really different, the current stock market selloff should pass and the uptrend should resume. On the other hand, if the current relationship reverses and market decline continues, then the economy will likely slow, and the markets would continue into a deep correction.

Enter the Atlanta Fed GDP 3rd quarter forecast

Released earlier today, the Atlanta Fed forecast the largest GDP growth rate in US history at 32%. Here is the link ( Atlanta Fed GDP Forecast ) The New York Fed was not as optimistic as they forecast 3rd quarter GDP at “only” 15.63%. Now this has certainly been a strange year and the Covid induced 2nd quarter GDP was way down at -34%, but with housing starts making a strong recovery, it’s alright to be cautiously optimistic. The actual 3rd quarter GDP will be released on October 29th, 4 days before the election.

It’s reasonable to expect market volatility over the next few months in spite of the Federal Reserve increasing its money infusion into the bond market and the financial system via its bond and ETF purchases. Add in the turmoil in blue cities, possible new Supreme Court justice confirmation process, Covid-19, the election, and whatever else 2020 wants to throw at us and I don’t know how there will not be volatility.

Here are a few things to remember when managing investment portfolios:
  • Don’t fight the Fed
  • Don’t fight the market’s dominant trend and momentum
  • Stick with strong sectors
  • Take some profits if necessary
  • To minimize portfolio volatility, execute trades in small to moderate share lots
  • Monitor weak sectors for possible turnaround opportunities
  • Live within your risk tolerance
  • Stick with the rules-based investment process to remove emotion

Fall of 2020 should be quite exciting and a time to remember.