Last Friday, the U.S. GDP tumbled to just 0.7%, down from 2.1% in the previous quarter and well below expectations of 1.0%. That’s the lowest quarterly growth in about three years.
While we saw increases in business investment, exports and housing, it was mostly offset by a big slowdown in consumer spending – up just 0.23% annualized.
That’s the lowest increase in nearly eight years, and that severely impacted the GDP.
The slowdown in consumer spending is causing some retailers to consolidate and restructure. In fact, in early 2017, 14 retail chains announced they would seek to reorganize under bankruptcy protection according to S&P Global Market Intelligence.
Despite the GDP plunging, the NASDAQ is setting new records above 6,000. The S&P 500 is surging well above 2,390. The Dow Jones is nearing 21,000. The Russell 2000 is above 1,400.
Hefty stock valuations are commonplace. In fact, Tesla is now worth more than Ford. Amazon is now worth more than Wal-Mart, Target, Best Buy and Macy’s combined.
Money is flowing into ETFs like never before. In the first two months of 2017, $131 billion came into index-tracking funds. That follows $390 billion pushed into similar trades for all of 2016.
While the GDP may be lower than predicted, the markets are not phased. Instead, they are surging to new all-time highs.
A big reason is a high tech rally fueled by corporations releasing better-than-expected financial results, beating Wall Street’s expectations.
While a number of investors cooled their optimism as a result of the postponement of the vote on the healthcare bill, many still believe Donald Trump can achieve his set goals with tax reform, infrastructure, repatriation, and healthcare changes.
It will just take longer than originally expected.
Until proven wrong, investors are as optimistic as ever.