Dear Garden State Trust:
What are the chances that the wild ride for stocks will end soon? What does the latest GDP figure suggest for the future?
—All Shook Up
The U.S. Gross Domestic Product grew at a record 33.1% annualized rate during the third quarter of the year. The previous one-quarter record was about half that, set when Harry Truman was president. This performance has to be seen as good news, suggesting that economy recovery could be on the way.
On the other hand, this good news followed the record bad news of an unprecedented 31.4% contraction (annualized) in the second quarter of the year. To some extent, the good third-quarter numbers simply reflect the extraordinary deficit spending by the federal government in responding to the coronavirus pandemic. Different segments of the economy have had very different experiences during the pandemic, with the retailers and restaurants remaining in particular trouble.
The technical indicators of stock market volatility were very high as October closed, perhaps due to uncertainty about the election. There is also fear of a major return of the coronavirus, new lockdowns, and there are unresolved questions about how state and local governments will be able to respond to the tax shortfalls that they have experienced.
As is often the case, you can’t take the financial markets for granted.
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