May 9, 3:00 pm EST
Stocks have a huge influence on sentiment. And sentiment has a huge influence on economic activity.
With that, for the better part of the past four months, we’ve discussed the technical correction we’ve seen in stocks. And we’ve waited patiently for a catalyst to end the correction and resume the long-term bull trend for the stock market.
That catalyst, we anticipated, would be first quarter data (namely earnings and GDP growth). Indeed, that data has confirmed that fiscal stimulus is stoking the economy – shifting it into a higher growth gear than what we’ve seen coming out of the global financial crisis.
Let’s take a look at how this has played out, and the important technical break we’ve had today in the Dow that further supports that the correction is over.
As you can see, we put in the low of this technical correction in the Dow the day after the first quarter ended. And we’ve since seen Q1 earnings roll in, with record positive earnings surprises, record margins and the hottest revenue growth we’ve seen in a long time. Toward the end of April, we had our first look at Q1 GDP growth. That too beat expectations and showed an economy that is growing at 2.875% over the past three quarters — closing in on that big 3% trend-growth level.
Along the way, we’ve tested the 200-day moving average (the purple line) and held. And today, we get a break of this big trendline from the highs of January.
And this beak in stocks comes with the 10-year yield back at 3%, and with oil above $70. While some have seen these levels as a risk to growth, they are rather reflecting a stronger economy, with surging demand.