That is a full two-point deduction, which is a little more than simply not sticking the landing. This is a huge disappointment.
The first reading of second quarter GDP came in at 6.5 percent. That would be fantastic under normal circumstances, but there is nothing normal going on right now. Expectations were for 8.5 percent and that had already been lowered from 9 percent.
I have said it a thousand times if I have said it once, but the real indicator of how the market feels is not the headline index return, but what is happening under the surface. While the broad indices have held up, underneath the surface we have had a rotation. Smaller company stocks, as measured by the Russell 2000, have underperformed, as have value stocks. Large-growth stocks have come back.
Investors now go towards these large technology firms when they believe there is no growth to be had anywhere else. These high-fliers have somewhat ironically become today’s defensive stocks. The market has gone from telling us that we are going to grow exponentially to saying we are headed for a recession. The market exaggerates.
What was overly optimistic just a few months ago, has become overly pessimistic.
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