Much of today’s weakness in the equity markets is not just due to a stronger dollar or an equity market that still may be ahead of itself. A strategist call from Goldman Sachs Group (NYSE: GS) with a lower target on Q3 Gross Domestic Product may have just piled on top of other weaker economic data. A weaker-than-expected durable goods this morning and a drop in new homes only added to the pressure. The call from Goldman Sachs is for Q3 GDP of 2.7%, down from a prior forecast 0f about 3.0%. The official Bloomberg estimate was still 3.0% for Q3.
Goldman Sachs has been accused of mastering the economic projections before. And some have hinted at much more than just solid forecasting. We aren’t going to go into any semantics or go into any conspiracy theories because that isn’t what we like to do. It is just as easy to argue that analysts and economists are entitled to make last-minute revisions. We see it in equity research calls all the time.
Today’s last-minute cut for GDP only added to the weakness. The DJIA closed down 1.2% at 9,762.69 on an unofficial basis, only about 4 points off the daily low. The S&P 500 closed down a much sharper amount by -1.95% at 1,042.63, and that intra-day low was 1,042.18. Then the NASDAQ was the worst off all three with a 2.6% drop to $2,059.61, above an intra-day low of 2,057.40.
Equities may still be ahead of the economy. But the silver lining is that GDP is still expected to be positive. As the recession formally was pinpointed as starting at the end of 2007, it just takes one more positive quarter if tomorrow’s report comes in as expected and then the recession will officially have ended. Too bad it is leaving 1 of every 10 workers out in the cold.
JON C. OGG
OCTOBER 28, 2009