U.S. Growth Revised Higher but Market Volatility Expected to Continue

February 29, 2016

U.S. Growth Revised Higher but Market Volatility Expected to Continue Photo

Last week, fourth quarter Gross Domestic Product (GDP) was revised higher from an initial 0.7% to 1.0%. The better-than-expected growth was due to less negative impact from business inventories. The increase in GDP was modest, but it was better than the estimated decline of 0.4%. Based on the data year-to-date, I expect first quarter GDP to accelerate to 2.5%.

The markets were relatively stable last week, with U.S. equities up modestly. Continued appreciation in crude oil prices helped risk markets have a favorable tone for the week.

I expect volatility to pick up this week, with some key economic data being released and more focus on China and a potential "Brexit." The ISM and February employment data are the two most important data releases. If the ISM can rebound above 50 and employment gains north of 200,000, this would be positive for equities and negative for U.S. Treasuries and Gold.

With declining liquidity from investment banks and continued outflows from hedge funds, high levels of volatility should be expected for the foreseeable future. This volatility can be in either direction, so stay focused on fundamental valuations and what is priced into the markets in determining entry and exit points.

Tags: Monday Morning O'Malley | U.S. economy | Market volatility | GDP | Brexit | U.K.

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