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Grüner Fisher: “Classify GDP numbers correctly”

At the end of October, the US Bureau of Economic Analysis will publish its estimate for US GDP in the third quarter of 2020. Expect a historic increase! The estimates recorded so far, which were created based on real-time data

Violent movement ahead

At the end of October, the US Bureau of Economic Analysis will publish its estimate for US GDP in the third quarter of 2020. Expect a historic increase! The estimates recorded so far, which were created on the basis of real-time data, forecast a median increase of 26.1 percent. Similar big leaps, if not bigger, are expected for most industrialized countries. Current estimates are 39.1 percent for the euro zone and 31.1 percent for Germany. The resulting insights for investors are limited, but this data can help maintain healthy expectations.

The basic effect strikes

The easiest way to find out is that this historic increase is fueled by a low base. Indeed, the second quarter of 2020 was historically bad, for example the third estimate for US GDP is currently -31.4 percent. And just as we pointed out in the past that annualized data project the quarterly development over a year and thus US GDP has not really shrunk by a third, the increase of 26.1 percent in the third quarter would not mean that the US GDP GDP grew by more than a quarter. It simply illustrates the roller coaster ride of the past few months: tough cuts in the lockdown months and a quick recovery that has naturally resulted from the resumption of business. A development that was anticipated early on in the stock markets and processed in the context of a V-shaped movement, now the data is following, so to speak.

What does the near future hold?

The expectations for the fourth quarter of 2020 make it clear that the data turbulence will subside again towards the end of the year. Forward-looking forecasts for US GDP put the annualized growth rate at 5.2 percent. This value still suggests a high level of dynamism, but no new record values ​​will be achieved in the fourth quarter of 2020. Of course, critical viewers criticize the slowdown in the recovery movement in many areas of the economy. Starting from a stronger base, however, it is normal for growth rates to level off again at a moderate level after the first highly dynamic countermovement has taken place. We see this development rather as a sign that a certain normalization can be observed in the amount of data after the extraordinary events in 2020.

It is unlikely that the global economy will be able to reach pre-crisis levels again in the fourth quarter of 2020. Ultimately, however, this discussion revolves around quite random markings that are of little significance for stock markets. In the history of the stock markets, there are no indications that achieving the previous economic performance again after a recession has a noticeable impact on the stock markets. The current situation with COVID-19 should not be an exception here.

Conclusion

Long-term investors should still not focus too much on quarterly GDP numbers. Just as the second quarter did not herald a downfall, the third quarter does not necessarily create a cheer on the markets. The data will normalize in the foreseeable future and the stock markets will continue to look to the future – even beyond the current calendar year.

You can request the current capital market outlook from Grüner Fisher Investments free of charge at www.gruener-fisher.de.

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