Is 8% GDP Good for Stocks? | LPL Daily Market Update

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Friday, March 26, 2021

Daily Insights

US stocks mixed as S&P 500 Index looks to avoid a second straight weekly decline; Nasdaq set to underperform

  • The Federal Reserve announced that banks that clear the next round of stress tests will be allowed to resume dividend payments and share repurchases.
  • European markets are modestly higher in midday trading and on pace to finish the week positive.
  • Technology stocks propelled Asian markets higher overnight with China outperforming.

Is 8% GDP good for stocks? The US economy is set to come roaring back in 2021, with some estimates now calling for 8% or more Gross Domestic Product (GDP).

  • This would be the best GDP since 1951.
  • The catch is big GDP jumps don’t always equal big stock gains, in fact, some of the lowest GDP prints ever have been better for stocks.
  • This is because stocks are forward looking, as they usually turn well before the economy. Last year is the perfect example.
  • LPL Research continues to forecast GDP growth of 5.0-5.5% in 2021.

Read more about this in today’s LPL Research blog.

Technical update

Stocks reversed sharply higher yesterday, led by the Russell 2000, which rallied nearly 4% off its intraday lows. While the small cap underperformance may have more to go versus large, we believe it may represent an opportunity to take advantage of a pullback in a relative trend. The Russell 2000 has support near 2100. The Nasdaq, which is lagging again in early trading, has support at 12,397 and resistance at 13,607.

COVID-19 news

The US reported 70,000 new COVID-19 cases on Thursday, as rising cases in northern states have begun to offset the decline in southern states (source: New York Times).

  • Michigan continues to report the fastest increase in cases, where the 7-day average of new cases has almost quadrupled in five weeks
  • The situation in Western Europe is little changed, but data may be suggesting that case growth is beginning to decline in France and Italy
  • AstraZeneca study citing a 79% efficacy rate against the virus has been revised to 76% after further investigation
  • Rate of vaccination in the US has remained at a firm 2.5 million people per day, or roughly 1.2% of adults

The Second Year Of The Bull Market Begins

LPL Research strategists discuss the end of the bear market and the trends of a bull market in year two. Learn more in this week’s Weekly Market Commentary.

The Bull Market Turns One

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder consider what could be in store for stocks in year two of the bull market, along with a discussion of rates and the latest Federal Reserve meeting.

 

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