The Atlanta Fed GDPNow model has lowered its growth estimate for the third quarter from 2.3% to 2.1%. This change comes after new economic data showed weaker forecasts for personal consumption and private fixed investment. – Growth projections for personal consumption dropped from 1.9% to 1.6%. – Forecasts for private fixed investment went down from 2.5% to 2.0%. On a positive note, the anticipated contribution of inventory investment to GDP growth increased from 0.63 percentage points to 0.74 percentage points.

Real-Time Estimate of GDP Growth

The GDPNow model provides real-time GDP growth estimates and updates frequently. The next update is set for Tuesday, August 5. This estimate incorporates data from various sources, including the US Bureau of Labor Statistics and the US Census Bureau. Today’s data shows the Q3 growth forecast is now 2.1%. This slowdown is directly linked to weaker consumer spending and business investment. We will continue to monitor this trend in the coming weeks. This revision follows several disappointing reports. The July jobs report revealed the economy added only 155,000 jobs, significantly fewer than the expected 190,000. Additionally, the ISM Manufacturing index dipped to 50.2, just above the expansion threshold. July’s retail sales remained flat, indicating a cautious consumer outlook.

Market Volatility and Investment Strategies

Given this uncertainty, we expect market volatility to increase from its current low levels. The VIX, which measures market fear, has already risen to around 18, and option premiums are likely to rise. This suggests it’s a good time to consider buying protection or taking positions that benefit from larger price fluctuations. We recommend defensive positions in the stock market. Buying put options on the S&P 500 or Nasdaq 100 can provide a direct hedge against a potential market downturn. This approach is similar to strategies we used during slowdowns in 2019 and 2022, where proactive defense paid off. Slower growth also makes near-term interest rate hikes from the Federal Reserve less likely. We see an opportunity in interest rate derivatives, particularly through call options on long-term bond ETFs like TLT. This strategy would benefit if bond prices rise as yields fall due to a weaker economic outlook. Sector-wise, defensive industries are likely to perform better than cyclical ones in this environment. We are looking into buying puts on consumer discretionary ETFs while simultaneously considering calls on consumer staples and utilities. This strategy aims to create a relative value position that could do well even if the market remains stagnant. Create your live VT Markets account and start trading now.

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