The Atlanta Fed’s GDPNow growth estimate for Q3 has gone up to 2.5%, rising from 2.1% on August 1. Early estimates can be a bit unpredictable, but the Atlanta Fed is typically accurate with its forecasts. As of August 5, the GDPNow model predicts real GDP growth at a seasonally adjusted annual rate of 2.5% for the third quarter. This is an increase from the initial estimate of 2.1%. New data from sources like the US Bureau of Economic Analysis, US Census Bureau, and Institute for Supply Management contributed to this increase. In particular, real personal consumption expenditures and real gross private domestic investment have been adjusted upward from 1.6% to 2.0% and from 6.3% to 6.9%, respectively. These positive adjustments offset a slight drop in the contribution of net exports, which fell from -0.30 percentage points to -0.36 percentage points.

Next GDPNow Update

The next GDPNow update is set for Thursday, August 7. The Atlanta Fed’s revised GDPNow estimate of 2.5% suggests that the economy might be stronger than expected. This challenges the common belief that the economy is slowing down in the second half of the year. We should be prepared for the possibility that growth forecasts could continue to rise as more data becomes available. This new growth estimate is especially important when considering the recent Consumer Price Index report for July 2025, which showed inflation at 3.4%. The combination of growing economic activity and ongoing inflation increases the likelihood that the Federal Reserve will postpone planned interest rate cuts. As a result, options related to higher interest rates, such as put options on long-duration bond ETFs like TLT, become more appealing. The report also points out that it’s still early in the quarter, so these estimates can change significantly. With the next GDPNow update on August 7 and the monthly employment report coming soon, we can expect more market volatility. In this environment, buying VIX call options or index straddles could be a smart way to profit from significant price movements.

Market Repricing Implications

Recently, the market consensus anticipated a quarter-point rate cut from the Federal Reserve by December 2025. However, this new economic data could disrupt that expectation and lead to major market adjustments. We experienced a similar situation in 2023 when unexpectedly strong economic data pushed back the timeline for a Fed pivot. For equity traders, this means a potential shift toward cyclical sectors that thrive during economic growth, like industrials and materials. Investors might want to consider buying call options on sector ETFs that focus on these areas. On the flip side, rate-sensitive growth stocks, especially in technology, may struggle if bond yields continue to rise in light of this data. Create your live VT Markets account and start trading now.

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