Small Cap Network Blog

By now you’ve certainly heard the good news - the second quarter’s growth in GDP (gross domestic product) was actually 3.3% rather than 1.9%. Fantastic. However, in all fairness to Joe Investor, does it really matter at this point? This is why I’m interested in very little economic data any more….at least not the economic barometers. Woe to anybody who still puts their faith in it.

There’s a short list of problems I have with the whole mess…

1) First of all, Q2 ended 59 days ago. We’re only 34 days away from the end of Q3. Does Q2’s data really matter any more?

2) Let me get this right….the government’s first guess was only 1.9%, which was well under the initial expected growth rate of 2.7%. Then they come back later and so “Nope, sorry - it was actually much better than anybody even came close to imagining.”? I know there are a lot of inputs, but that makes the initial calculation not only pointless, but dangerous.

3) Is this really data that investors can worry about? The reason I ask….if it is data we need to respond to, we could drive ourselves crazy. Take a look at the chart below, comparing the S&P 500 to the GDP growth rate over the last several years.

It seems to me there’s not enough consistency in the GDP’s change to actually make any real sense of it…at least not in terms of spotting a trend. This chart’s just a mess.

If anything, the only discernible pattern I’ve seen is that market bottoms are made at incredibly low GDP growth readings, and market tops are typically made when GDP growth is through the roof. Kinda make the whole thing pointless, doesn’t it?

Ah, but the media would never let reality and history stand in the way of the easy and quick story. If they’re putting the ‘GDP Revised Upward’ story on the front page of all the finance portals, then it must be important for investors….NOT!

Lesson learned - there’s always more to the story, and if you’re looking for a journalist to provide you with context or a valid cause-effect relationship, don’t hold your breath.

On the other hand, I hear the guy down at the Small Cap Network is pretty good about looking at economic data and the real impact (if any) it has on your portfolio.

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