One indicator has Wall St. abuzz with expectations for near zero economic growth in Q1/19. The widely followed Atlanta Fed GDP Now Forecast for annualized GDP growth in Q1 calls for just 0.38% growth – a near recession level. Remember, a recession is defined as two consecutive quarters of negative annualized growth. We believe the fear of a near recession growth slowdown may be overstated given that in four the past five years, the Atlanta Fed indicator has shown a similar drop in Q1 (Figure 1), only to end up with better growth moving forward.
In other words if the market does suffer a bout of profit taking, we believe it would temporary given that growth expectations may have become overly pessimistic based on an indicator with a seasonal skew.
Figure 1 – Atlanta Fed GDP Now Forecast is too seasonal!
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