Higher Revised GDP Growth Sends US Equities to Fresh Heights

Market Trends - 29/11/2017

Carrying over the tailwinds from the prior session’s gains, US equity futures have marched higher to fresh records, ahead of the cash equity session's opening bell and the fastest growth witnessed in years.  The second reading of third quarter GDP came in at a surprisingly strong 3.30%, topping the consensus estimate of a 3.20% annualized pace of expansion and marking the fastest rate of activity since the third quarter of 2014.  A higher revised print most notably reflects the increased rate of consumption, better business investment expenditures, rising inventories, and an improved environment for the nation’s export economy.  From the perspective of consumer spending, one of the key contributors was automobile sales, a development largely attributed to ongoing replacement efforts after an array of major hurricanes between July and September.  Even though the consumption contribution was smaller than the initial third quarter GDP estimate, the revision higher in other GDP components contributed to the elevated growth rate as well.

Despite the precarious political backdrop in tow, dire forecasts for the American economy under the stewardship of US President Donald Trump have largely failed to materialize.  Apart from rising home prices, consumer confidence remains near all-time highs as the possibility of actual tax reform measures becomes a growing possibility and not just the stuff dreams are made of.  Taken together, these advances in sentiment and macroeconomic fundamentals have been most clearly reflected by the fresh highs reached by key US equity benchmarks.  As a key leading indicator of economic activity and health, even Federal Reserve Chair Janet Yellen’s earlier comments to Congress highlighting that “asset valuations are high by historical standards” was not enough to dissuade the bidders for US stocks. Although the Nasdaq has found its own valuation under pressure, S&P 500 futures are still steadily on the climb, and are rising to new intraday highs, with the Dow pushing towards 24,000 on the heels of the latest upbeat announcement.

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