2.38% GDP Growth in Q2 Expected, Watch for Volatility

Focus: STOCKS

Don Kaufman Image Don Kaufman Co-Founder, TheoTrade

The consumer looks weak based on the uptick in credit card default rates, a major headwind for GDP growth if it continues. Watch for volatility during earnings season in four weeks, asserts Don Kaufman, Co-founder of TheoTrade.

As I have mentioned, the Citi Economic Surprise Index doesn’t indicate how the economy is doing but may be a good indicator for predicting turns in the cycle. Most of the time, the surprise index is useless because it shows changes which aren’t predictive. It’s similar to a rate of change chart of GDP.

GDP growth has slowed a few times this recovery, but that didn’t mean a recession was coming. GDP is going to accelerate in Q2 from Q1, but that doesn’t mean the economy is in great shape. However, when the rate of change moves sharply in one direction, it’s worth paying attention to.

As you can see from the chart below, the macro surprise index has now fallen to -61.7. This doesn’t mean the economy is headed for a recession, but it is worth monitoring. I predicted the index would fall a week ago when I mentioned that June is its worst month of the year. The question is whether it rebounds in July like the seasonality suggests. The index tends to reverse sharply, so I wouldn’t be surprised if it went positive in July. I would consider this latest move in the index to be a slight negative. I have downgraded its importance after doing more research into it as it has become the top chart bears share lately.

chart 1

Finally, my prediction that consumer sentiment would fall has come true.

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