Summary
2Q GDP was 4.2%; exports were a bit reason for the increase.
The 10-year treasury remains below 3%, indicating that bond traders aren't concerned about inflation, nor do they see this pace of growth continuing.
The markets are moving higher strongly.
2Q GDP was a bit hotter than in the first report. It rose 4.2%, .1% higher than the first release. Here are a few key graphs from the data:
This graph shows the percentage contributions from the four main categories of expenditures. Personal consumption (in blue) was the largest contributor as usual. Exports were the next largest contributor. Investment (in purple) was weak for the first time in the year and government spending (in green) was modest.
This table shows the percentage of growth that exports contributed to each quarterly GDP report since the middle of the last recession. It's rare for exports to contribute such a large amount, giving credence to the argument that Trump's imposition of tariffs pulled export orders forward.
Despite the strong 2Q growth, treasury bond yields are below 3%:
Despite the strong increase in 2Q18 GDP and PCE price levels at/near 2% (and CPI higher), the 10-year CMT has traded below 3% for a majority of the summer. Bond traders don't see growth remaining at such strong levels nor are they concerned about inflationary pressures rising to higher levels. The chart of the 10-year breakeven inflation rate confirms this observation:
The difference between the 10-year treasury and its corresponding TIP has fluctuated right below 2.2% for most of this year. So, the bond market is saying that right now, we're at peak growth.
What about Canada? Our northern neighbor has been conspicuously absent from the NAFTA talks. However, their lead negotiator flew to Washington over the last 48 hours to "save the negotiations. Now we have word from Canada's Prime Minister that a deal would occur within the week. Sticking points still remain, however, especially with Canada's dairy industry. Stay tuned.
When we last left the markets, they were rallying. The large caps had advanced strongly while the small and mid-caps were a touch weaker, but still moving higher. That's no longer the case: everybody is doing well right now.
Let's start with a table of today's performance:
The Invesco QQQ Trust Series 1 (NASDAQ:QQQ) -- which are tech-heavy -- rose over 1%. Then we have the larger company indexes and mid and small caps. But everybody rose.
It's really in the 2-week charts that the current rally really shows up:
The QQQs are the best example; they've got a nice parabolic move happening.
The mid-caps (top chart) and small caps (bottom chart) both have strong, upward sloping channels.
While the SPDR S&P 500 (NYSE:SPY) have a rally, consolidation, rally, consolidation, pattern.
And then we have the daily charts, which are "all go, no stop" right now.
Both the QQQs and the SPYs have (finally) printed strong bars with a rising MACD. Neither has any major resistance.
We're mid-week and the markets are rallying. We had an upwardly revised GDP report and a possible settling down of trade issues. And tomorrow's PCE report should be positive. An upward move looks more than possible.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.