Fears of a stock market crash are swirling ahead of the release of the Gross Domestic Product (GDP) report due this Thursday, Jan. 25. Indeed, GDP is top of mind this week as investors wait for the crucial economic growth report.
What should you be looking out for this week?
Well, this week’s GDP release is expected to offer some insight into the year as it pertains to economic growth. Indeed, everything from housing to inflation can be gleaned from GDP, hence why economists are keeping such a close eye on it early in the year.
This week will come the first estimate for the fourth-quarter 2023 GDP. As it stands, expectations are for yet another quarter of solid growth, around 2%. However, some economists are tentatively expecting another beat a la Q3’s sky-high 4.9% reading.
Given strong spending data for the final month of the year, it’s actually possible that GDP ends up notably higher than the 2% estimate.
“The boost in consumer spending at year-end will carry over into the first quarter of the new year providing evidence that the economy will not be slowing down as much as policy makers had thought,” said FWD BONDS Chief Economist Christopher Rupkey. “There may be a soft-landing for inflation, but the economy is still flying high enough to create new jobs and economists can take down those recession forecasts this year.”
GDP Report Rings Stock Market Crash Alarm
The results of the GDP report will also be telling on the inflation front. The fact is, strong economic growth isn’t exactly conducive to disinflation. Indeed, high spending and low unemployment — and thus solid economic growth — are typically conditions associated with inflation, not the reduction of it.
As such, if the report comes out too strong, it may be a sign that the Federal Reserve may take even longer to start rolling out its three or more expected rate cuts for the year.
“Overall, we view this meeting as one where the committee will buy time to discern if inflation is indeed on a sustainable path back to 2% and serve as an opportunity to build consensus around the conditions for eventual policy easing,” Wells Fargo economists noted.
As such, economists are likely hoping for something of “Goldilocks” reading this time around. That is, a reading that shows strong enough economic growth to eschew any lingering recession fears, but not so strong as to induce an even more hawkish Fed.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
