The crazy volatility of recent days isn’t over yet, but the major indexes appear on track to sustain the rebound from Wednesday. The overnight action out of China was favorable, with government intervention giving stocks a major lift towards the end of their trading session.
On the data front, we got two positive readings in the second look at Q2 GDP and the weekly Jobless Claims numbers. The GDP report is particularly strong, with all-around positive revisions to all key components. We should be mindful, however, that a big contributor to the +3.7% revised growth pace is inventories, which means some give back in the current period as companies build fewer inventories.
That said, this GDP report nevertheless reconfirms what we knew already — that the US economy was doing fine. Key Fed officials have started calling the case for a September rate hike as ‘less compelling’ following recent market turbulence. But today’s economic data and next week’s August non-farm payroll and the factory sector ISM reports will prove that the extreme market volatility of recent days isn’t pointing to anything wrong with the US economy.
Uncertainty about China remains at the core of market worries and that issue will most likely remain with us for some time. But while China is a big player and has a bearing in most sectors, there are many areas where it has the least direct impact. You don’t need to hide among electric utilities to stay ‘domestic’ and keep out the China effect – the Finance, Retail and Medical sectors provide plenty of domestic-oriented opportunities that are largely immune from a slowing Chinese economy.
Even some of the consumer-oriented names such as Apple (AAPL) and General Motors (GM) have a lot more staying power than they typically get credit for. The most vulnerable names remain in the materials and industrials spaces, with commodity producers and capital goods exporters faced with an extended weak demand environment.
