Wall Street analysts are holding their breath and crossing their fingers this morning as they await gross domestic product numbers for the final quarter of 2022.
Traders have recently been celebrating dismal economic news in the hopes that it will prompt the Federal Reserve to pivot away from rate hikes and maybe even provide some stimulus to boost corporate coffers.
But that could all change if a recession looms into view and the US debt ceiling standoff drags on.
What's happening: Fourth-quarter US GDP numbers are due out at 8:30 a.m. ET Thursday and they're expected to show a healthy economy with a 2.6% annual growth rate. While that would be a moderation from the third quarter's 3.2% growth, it's not a sign of an economy on the brink of recession.
Economists will also get their first peak at annual GDP growth for 2022, which will likely slow significantly from 2021's very strong 5.9%, which was the best performance since 1984.
Investors are hoping for a Goldilocks "not too hot, not too cold" number that reassures the pessimists that a soft-landing for the economy is still possible but that also convinces the Fed that their inflation-fighting rate hikes have worked well enough to consider a pause.
Wall Street reacts: "One of the more perverse realities to remind clients about is that financial markets and the economy operate on different dimensions, periodically disagreeing about what is good or bad," wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management in a recent note.
"Whether Wall Street and Main Street align often depends on where we are in the business and market cycles, the extent to which they've gotten out of sync and the prevailing narrative that markets are discounting," she continued.
The first GDP report of the year, and the Fed meeting next week, are coming on the heels of one of the worst bear markets and some of the largest interest rate hikes in decades. A growing chorus of CEOs are warning of a recession.
The bottom line: Shalett has some advice for investors: "Best to lose the obsession with the Fed, and focus on fundamentals," she wrote. Good news should be good news and bad news should be bad news.
Quincy Krosby, chief global strategist for LPL Financial, thinks that investors are already following that guidance. Equity markets, she wrote in a recent note, "have apparently begun to interpret data with a more realistic perspective." Weak data, she noted, "is now being judged more harshly with bad news no longer enjoying a warm welcome by traders and investors alike."
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