Investors care about GDP reports because they provide the most comprehensive scorecard about the overall health of the economy. Since healthy economic growth helps boost corporate profits, over the long run, stock market performance tends to mirror economic performance. In the short term, as we have seen, markets can behave unpredictably even during periods of positive economic growth.
Digging deeper into the GDP data, we see that strong consumer spending, exports, and business investment were strong last quarter. However, the economy cooled because of higher imports and lower federal government spending.[6] Bottom line: The economy was fundamentally on very stable footing at the end of the year. Though we don't have first quarter GDP numbers yet, it's clear that the Fed feels comfortable enough about the economy to think about raising rates.
The holiday-shortened week ahead is packed with important economic data and marks the end of the first quarter. Analysts will be looking particularly closely at Friday's March jobs report, which will add fuel to the debate around when the Fed will raise interest rates. A report that shows healthy improvement in the labor market might signal that the economy is robust enough to withstand rate hikes. We expect markets to remain volatile going into earnings season as investors wait to see how U.S. companies did in the first three months of the year.
ECONOMIC CALENDAR:
Tuesday: S&P Case-Shiller HPI, Chicago PMI, Consumer Confidence
Wednesday: Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending, EIA Petroleum Status Report
Thursday: International Trade, Jobless Claims, Janet Yellen Speaks 8:30 AM ET, Factory Orders
Friday: Employment Situation, U.S. Stock Market Closed
HEADLINES:
Consumer sentiment falls in March. A measure of confidence among U.S. consumers fell, indicating that Americans may be worried about their prospects this quarter.[8]
Existing home sales rebound less than expected in February. While sales rose last month, a persistent shortage of available properties restrained selling activity. Though warmer weather should boost sales, higher prices stemming from low housing inventory might curb buyers' appetites.[9]
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