US GDP Quick Analysis: Goldilocks for stocks? Three reasons to cheer a weak growth figure

Growth has missed expectations by over 2% – in normal days that would be deeply devastating for markets. A miss of 2% annualized or 0.5% quarterly is substantial. However, in post-pandemic times, such a miss conceals significant positive news that could support markets.

First, the 6.5% annualized increase in Gross Domestic Product represents robust growth in absolute terms, considering the pre-pandemic "normal" of 2-2.5%. It came on top of 6.4% in the first quarter. So far, 2021 is shaping up to be one of the strongest years on record. 

Secondly, there is room for considerable growth also in the second half of the year – even if the Delta covid variant serves as a speed limit. Inventories cut the expansion by 1.1% in the three months ending in June, and by around 2.7% in those ending in March. Depleted stocks need to be replenished.

Filling up inventories seems imminent, and that is a boon for factories and also for consumers – who will have more on what to splash their cash. Instead of extraordinary growth in the second quarter and mediocre one afterward, investors can now expect "only" strong growth, but lasting for longer. That is good news for many companies. 

Third, the relatively downbeat headline figure seems to vindicate the dovish view by the Federal Reserve. Only on Wednesday, Fed Chair Jerome Powell refrained from putting a date on when the bank would even consider tapering down its bond-buying scheme. It currently stands at $120 billion/month and will likely last for longer. 

More dollars from the central bank imply additional support for equities. 

Overall, the second quarter's GDP report looks like a win-win for stocks. For the dollar, it adds to the misery already inflicted by the Fed. 

See Inflation, the chip shortage and Delta are peaking, what it means for markets and the dollar