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Why some investors fear a strong GDP print on Friday

Scott Gamm

Investors may not welcome a strong third-quarter GDP print on Friday.

The stock market just won’t embrace positive news — even expectations of 20% earnings growth weren’t enough to prevent this week’s stock market correction.

“The GDP number could bring with it some good news, as we expect a strong print,” said Ryan Detrick, senior market strategist at LPL Financial. Analysts are expecting third-quarter GDP to rise 3.3%, a slowdown from second quarter’s 4.2% print, but still a strong number.

“We’ve had some good news on the earnings front the past week or so, and it has done little to slow the growing list of worries and volatility,” Detrick added.

List of concerns

High up on the list of worries is the threat of higher interest rates, which not only make stocks less attractive, but also raise borrowing costs for consumers. Consumer spending is two-thirds of GDP.

A strong GDP print on Friday could embolden the Federal Reserve to stick to its plans to normalize interest rates after years of crisis-era rates.

Ann Miletti, senior portfolio manager with Wells Fargo Asset Management, thinks the market is already pricing in a strong GDP number on Friday, but expects increased scrutiny on the Fed’s plans for 2019.

“It depends on what we hear next from the Fed,” she said, referring to the Fed’s next statement release on Nov. 8.

With the backdrop of a strong economy, Miletti is fond of the financials sector, particularly Raymond James (RJF).

With the return of volatility to the markets, investors tend to need additional advice, which could be a boon for Raymond James, which is down 15% so far this year.

Rising interest rates would also benefit Raymond James, she said. Banks see thicker margins in rising rate environments.

Ryan Payne, president of Payne Capital Management, is also bullish on the financials sector.

The Financial Select Sector SPDR Fund (XLF) trades at a valuation of around 13 times forward PE, cheaper than the S&P 500’s 16 times forward PE,” he noted.

The XLF is down over 8% so far this year.

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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