What Strong U.S. GDP Data Means for Your Portfolio

Source: Thinkstock

Source: Thinkstock

On Wednesday morning, the U.S. Bureau of Economic Analysis (BEA) released its first estimate for second-quarter GDP. The data came at +4 percent, which was better than analyst expectations of +3.2 percent. However, the reader should note that the first estimate is just that — and that we will see this number revised several times in the next few months, and even quarters and years.

In addition to this strong data, the BEA announced that the first-quarter wasn’t as bad as expected, with GDP falling just 2.1 percent versus the initial estimate of a decline of 2.9 percent, and second half 2013 data showed a slight improvement as well. While preliminary this is generally good news, and it suggests that the U.S. economy probably isn’t in a recession, investors should note that in the first-quarter GDP grew at 0.9 percent, which is mediocre.

Investors didn’t really react to the news. While stock futures popped slightly immediately after the news, they immediately gave up these gains. Treasury bonds and gold fell slightly, suggesting that traders are betting against safe havens on the belief that the U.S. economy is improving.

As an investor, your first reaction might be that this is good news, and a reason to buy stocks and economically sensitive stocks in particular. However, such causality is an overly simplistic way of looking at things, and there are three reasons for this.

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