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Stock market bears have missed U.S. growth accelerating for all of 2017. We didn't. The best may still be yet to come for the U.S. economy. We think growth continues to accelerate through the first quarter of 2018. That will continue to push the U.S. stock market higher.
The final revision to second quarter U.S. GDP came in higher than Wall Street economists expected today. With a 10 basis point revision, the reading of 3.1% (on a quarter-over-quarter seasonally adjusted annual rate basis, QoQ SAAR) marks the fastest rate of U.S. economic growth since March 2015.
The quarter-over-quarter seasonally adjusted annual rate isn't the right way to map the U.S. economy. Don't get whipped around by this mouthful of a measure. Instead, we look at year-over-year growth which more accurately captures the trend in the U.S. economy.
Here goes: In the first quarter of 2015, year-over-year GDP peaked at 3.8% fell to 1.2% by the second quarter of 2016 and has since rebounded to 2.2% in the second quarter of 2017.
We called the 2015-2016 U.S. growth slowdown and were bearish on domestic equities. The Russell 2000 crashed -28% from its July 2015 high to its first quarter of 2016 low. We also spotted the uptick in U.S. growth and have been bullish on stocks for the better part of a year now. The S&P 500 is up 12% year-to-date and, since we've been particularly bullish on Tech stocks, the Nasdaq is up 19.6%.
As Hedgeye CEO Keith McCullough wrote to subscribers this morning:
"Cheers to the +3.1% US GDP #Accelerating report this morning btw. That's obviously something very big that Nasdaq Bears missed in 2017.
“Expensive” gets more expensive when growth is accelerating."
Again, we've been saying this for some time now. Here's a video clip from December 2016 in which McCullough explains why the U.S. stock market can "get a lot more expensive."
We're sticking with our call on U.S. growth accelerating and the stock market here.
The trend is clear.
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