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US GDP Estimates

Thursday, October 29, 2009

US GDP Estimates

Gross Domestic Product (GDP) will be the driver of the stock market on Thursday. Expect to see little movement or volume in the market until the numbers are announced by the FED.
The consensus among analysts is that GDP growth for the third quarter of 2009 should come in around 3%. If GDP comes in above 3% expect the stock market to surge ahead and recover most of the losses on the week. If GDP comes in below 3%, get ready for a bear market correction that could take the stock markets on a wild ride down at least 20%.

The risk seems to be more heavily weighted to the downside. Over the past week there have been numerous economic indicators missing analysts estimates to the downside with the most recent, a lower than expected durable goods shipments on Wednesday morning and an unexpected drop in new home sales.

Even Goldman Sachs (NYSE:GS) has cut there expectation of GDP below 3% to 2.7% as soon as the durable goods shipment was announced to the downside. This announcement followed an onslaught of estimate reductions: Morgan Stanley (NYSE:MS) cut from 3.9% to 3.8%, Bank of America - Merrill Lynch (NYSE:BAC) cut from 2.5% to 2.3%; however, according to economists pulled still anticipated GDP Growth to come in at 3.5% on average ().

I am currently protecting my portfolio though a number of short positions: puts on (NYSE:SPY) DEC 90’s, and puts on (NYSE:IYR) DEC 39’s.

It will be an interesting day so let’s see what kind of mayhem comes.

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