ECONOMIC AND STOCK MARKET COMMENTARY

The economy’s third-quarter turnaround arrived on schedule, with the 2.9% gain in the U.S. gross domestic product, in fact, surpassing expectations. Encouragingly, this was the first time in a number of quarters that results had exceeded consensus views. It also was the economy’s best showing in two years.

The consumer is no longer the lone engine driving this comeback, with a more modest increase in spending in the latest span than in the preceding three months. Stepping in to partly fill the void were increases in inventory investment, exports, and federal government spending. Also, the earlier drag from weak business investment is starting to ease slightly, as oil prices stabilize, encouraging some energy-related projects.

Further modest growth should be the rule going forward, aided by continuing gains in consumer activity, a better performance in global trade, additional inventory restocking, and resilience in housing. Our business model holds that GDP growth will be in the 2.5% range through next year.

Given such a benign backdrop, it is reasonable to expect Corporate America to do well going forward. That would be in keeping with its solid showing in the third quarter. Here, in line with most recent periods, we saw results typically surpass the modest consensus expectations.

Meanwhile, the Federal Reserve, as expected, stayed the course on monetary policy at its recent FOMC meeting. On point, the get-together’s conclusion, coming less than a week before the election, might well have caused a stir if a surprise shift in policy had been adopted. Going forward, it may tighten next, but only if the interim data are supportive. Meanwhile …

The bulls and the bears entered the election campaign’s final days seeing the bears suddenly in charge, with the key averages trading at the low end of their recent tight band. It appears as if neither the GDP news nor the lack of a surprise from the Fed did much to move the needle as Election Day neared. But uncertainty about the latter event likely caused at least some stir among investors.

Conclusion: The election results may lead to some brief mood swings. But once the fundamentals are back in play, the bulls should again hold serve.

Source:  Valueline.com