At one point today the bulls were on the ropes, and I mean Rocky in the 14th round against Apollo Creed on the ropes. The Dow was down 180 and falling like a stone. The S&P 500 was clinging to the 1080 level with desperation. The whole thing looked like it was about to crack wide open, and various charts don’t show much holding up the market below 1080. But the market did hold. Like Rocky, the bulls came back with powerful body blows, and sent their attacker back to his corner clutching his side. For now.
Alright, maybe that’s a bit over the top, but not by much. The market was on the verge of a major selloff this morning, and with the Dow still closing down 116, and the 10000 mark back on the radar, a big one may not be far off.
Which brings us to tomorrow’s main event: fourth-quarter gross domestic product. This is the one that’s going to give the V-shapers their bonafides, prove that the economy’s rocketing up and the recession is behind. According to a Dow Jones survey, it’s expected to come in at 4.8%. A good many people are speculating it could be even higher.
Forget for a second that the rise is going to come very largely from the internal math that determines how GDP is calculated, like the way inventories are handled. Falling inventories subtract from GDP, rising inventories add to it. So even without a strong inventory build, if they merely stop falling, they will add to GDP just by virtue of their not subtracting from it any more. Neat, huh?
But, to get back to our main point, what if GDP comes in merely in step with expectations, or, God forbid, even worse. The market, like I said, was on the verge of a major selloff late this morning, and remains vulnerable. What do you think traders will do if GDP doesn’t meet the lofty expectations set for it?