Slip Slidin’ Away

Slip slidin’ away.  Stocks did just that yesterday as traders learned that the US GDP shrunk at an epic pace last quarter.  Earnings continue to show a mixed picture but technology continues to thrive and thrive.




Back in time.  Gross Domestic Product is value of all goods and services that are produced and purchased within a country.  I refer to it often, particularly in reference to consumer behavior, which is beyond an obsession for me.  If you haven’t heard me write it once or a dozen times, consumers make up about 70% of GDP, which means that their health, happiness, and confidence in the future are important for the economy to thrive.  GDP is calculated by adding economic activity of consumers ( C ), business investment ( I ), government spending ( G ), and net exports ( NX).  As aforementioned  C makes up roughly 70% of GDP, while makes up around 20% and makes up the rest.  NX actually takes away slightly as the US is net importer of goods.  Add those and monitor their change on a quarterly basis and you get to what is, perhaps, the most broadly watched economic indicator: GDP Growth.  As you might guess, we like to see that number going up, and it does for the most part… until it doesn’t. When it shrinks for 2 consecutive quarters, an economy is technically considered in a recession.  Yesterday, the Bureau of Economic Analysis announced the US GDP shrunk by -32.9% last quarter after falling by -5.0 in the prior one.  On the surface, it looks pretty ugly, but it actually came in a bit better than the expectations (hey, small victories are better than none at all). Another thing to note is that the number is expressed as an annualized figure, which shows what a whole year of similar quarterly declines look like, so the economy didn’t actually shrink by that amount in one quarter.  The real number can be roughly calculated by dividing it by 4, which is not actually how it is done, but close enough counts for this discussion.  That said, an economy that shrunk by around -8.5% in a quarter is still quite grim… and quite rare as well.  It is the worst reading since the series has been recorded (since 1947), though we know that there were worse readings in 1946, 1932, 1921, and 1932, so it is fair to say “worst in recent history”.  The potential upshot from here remains in the hand of the consumer.  The current quarter will have 3 months of post-lockdown consumer spending which should help form a rebound.  Though it may be slow going with the recovery being hampered by new virus spikes in certain states.  Stay confident. Stay healthy.


Teflon tech.  After last night’s closing bell, the last 4 of the big 5 tech stocks announced earnings. Apple,, Facebook, and Alphabet/Google announced their second quarter results, while Microsoft announced last week. These influential five companies represent roughly 1/5 the market cap of the S&P500, so the index’s performance is highly reliant on them.  These companies have continued to thrive throughout the economic tumult caused by the pandemic, which is why so many investors have been buying them. The run-up in those stocks alone have been a big contributor to the performance of the S&P500 and the Nasdaq Composite, which has not only recovered its post-corona losses, but also propelled the index to new all-time highs.  Microsoft beat estimates by +7.12% last week, while Apple,, and Facebook, and Alphabet logged surprises of +24.53%, +583.22%, +29.34%, +3.22% respectively.  If you recently bought an X-Box gaming system on Amazon using your iPhone after watching YouTube (part of Google) product reviews, you surely posted a picture of it on Instagram (part of Facebook).  Yep, tech appears to be working in all environments.




Stocks slipped yesterday on news of a precipitous drop in quarterly economic growth.  It was bad, but not surprising and stocks ultimately closed off their lows of the day.  The S&P500 slipped by -0.38%, the Dow Jones Industrial Average fell by -0.85%, the Russell 2000 gave up -0.37%, and the Nasdaq Composite Index advanced by +0.43%.  Bonds rose and 10-year treasury yields slid by -3 basis points to 0.54%,




– Personal Income (June) is expected to have fallen by -0.6% compared to last month’s -4.2% drop.  Personal Spending (June) may have increased by +5.2%, slower than last month’s growth of +8.2%.

– Chicago PMI (July) is expected to come in at 44.0, up from June’s 36.6 reading.

– University of Michigan Sentiment (July) is expected to be 72.9, up from the last reading of 36.6.

– This morning, Weyerhaeuser, Caterpillar, Aon, Johnson Controls, Merck, Under Armor, Colgate-Palmolive, L3Harris, VF Corp, Phillips 66, and Pinterest beat estimates while Chevron, Exxon Mobil, and AbbVie missed.

– Next week we will get lots more earnings along with manufacturing/services PMIs, Factory Orders, and Durable Goods Orders.  Most importantly, we will get the monthly employment numbers for July, which will be closely watched. Check back on Monday for calendars and details.



daily chartbook 2020-07-31


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