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GDP Shrinks, Stocks Soar - Go Figure?

ByWall Street Sector Selector
AuthorJohn Nyaradi
Published 06/26/2013, 04:38 AM

GDP tanks and stocks soar as investors decide bad news is good, at least for today.

Q1 GDP revision came out on Wednesday and posted a huge downward revision that widely missed economists’ expectations.

The preliminary estimate was 2.5% which was expected to stay about the same, however, today’s number came in at a weak 1.7%.

Personal consumption fell sharply, along with fixed investment.This is the final revision to Q1 GDP and the most significant part of the report was the downward revision in consumer spending from 3.4% to 2.6%. As the consumer makes up 70% of the U.S. economy, this is a worrisome figure since sustained growth here would be important to keep the recovery going.

Services spending declined sharply from previous estimates, revised to 1.7% from 3.4%, and business investment also slowed.

However, markets didn’t seem to care as today bad news was apparently good in early action on Wall Street.

Major indexes including the Dow Jones Industrial Average (DIA) S&P 500 (SPY) and Nasdaq (QQQ) were all up in the 0.8% range during the first half hour of trading.

News for gold (GLD) wasn’t as bright as gold fell another 3% and oil (USO) was mostly flat.

Bottom line: So is it going to be the “reflation trade” or the “deflation trade” and is bad news or good news bad? Go figure.

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