VRA Investment Letter: Third Quarter GDP Soared 4.9% With Consumers Leading the Way. VRA Market Update
/Good Thursday morning. Third quarter GDP was reported this AM and showed blistering growth in the US economy of 4.9%, beating estimates of 4.5%. This is the strongest economic growth since Q4 2021 when growth was just shy of 7% (coronavirus insanity). Of note in the report, consumer spending rose 4% in Q3, soaring past Q2 consumer spending, which came in at just .8%.
For much of the past 1–2 years the vast majority of economists have been predicting that the economy would slow down and then officially enter a recession. Worse still, and as a reminder of just how horrible this Federal Reserve and Chair J Powell have been, just 3 months ago the Fed was predicting a “contraction” in economic growth for Q3.
The stunning rise in Q3 GDP stems from the extraordinary strength of the US consumer, as we’ve been focused on over the last year.
The core strengths of the US economy:
Home prices at ATH
Net equity in homes at ATH
68% of Americans own at least one home
Consumer net worth at ATH
Credit scores at ATH
Mortgage defaults at all time low
Over the last 15 yrs consumers & corporations have cut debt by 25% (to disposable income & mkt value)
Corporate debt/market value at 50 yr lows.
These are the statistics we typically see at the beginning of economic expansions, not the end.
Returns of Our Leading Indicators the VRA Investing System
While the S&P 500 and nasdaq are up 21% and 22% from the bear market lows of 10/13/22, consider the returns of our leading equity indicators:
Housing stocks are up 41%
Nasdaq 100 is up 42%
Semis are up 75%
When our leading indicators are putting up these kinds of returns over the last 12 months, the facts are clear; we’re in just the first year of a new bull market. One that we see headed much higher, in the years to come.
Seasonality switches to bullish
We’ve entered one of the strongest periods of the year for stocks.
VRA Market Update
Yesterdays sharp decline, particularly in the semis and tech, officially broke through the October lows. The semis were down 4% on the day with Nasdaq lower by 2.5%.
The technical action has not been good, which Tyler covered in detail on his VRA Investing Podcast yesterday.
This is when longer term charts and our VRA momentum oscillators begin to matter, particularly as we prepare to enter November, the best month of the year (especially for semis/tech).
The semis (SMH) have fallen to just above the technically important 200 dma, but have yet to reach oversold levels that would scream “buy me”.
That does not mean the semis have further to fall, only that we’ve not hit our most aggressive technical buy signals. We expect the semis will continue to lead the markets higher, into year end and Q1 2024.
Nasdaq 100 (QQQ) reamins 4% above its 200 dma, with our momentum oscillators beginning to hit heavily oversold levels on our shortest term indicator (stochastics).
Again, we look for semis/tech to lead the markets higher, as we enter the best month of the year.
AAII Investor Sentiment Survey
Last nights AAII survey showed that bulls have fallen to 29.3% with bears at 43.2%.
This is the highest spread between bulls and bears since May. In addition, the Fear and Greed Index is flashing fear readings of 29.
Finally on sentiment, yesterdays put/call ratio closed at a big 1.28. Fear has clearly retuned for options investors.
VRA Bottom Line: Fear is returning. We’re now in one of the strongest periods of the year for stocks. Not the market noticed it yesterday, but throughout 2023 seasonality has held up extraordinary well.
We have bought dips from the 10/13/22 lows and will continue to buy dips.
Until next time, thanks again for reading…
Kip
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