Fri 1/27/12 9:34 PM – Stocks Pause, GDP Report for 4Q/11

After a steady climb since late December, the rally appears to have run out of steam, at least temporarily. There was moderate selling throughout the day yesterday and we will have more at the open today, based on disappointment over the GDP report on US economic growth for 4Q/11.

GDP came in at 2.8%, lower than the 3% expected. The real problem was that much of the growth was due to businesses buying to increase their inventories rather than purchasesby end-users. An example would be auto dealers buying more cars to put on their lot but not seeing much in the way of auto sales to you and me. End-user purchases is what we really want to see grow and that was very disappointing. And, big inventory rebuilding last quarter means there is probably less to rebuild this quarter. Because of that, the number for the current quarter when it comes out in April may be surprisingly weaker than expected.

On the other hand, there is talk of a resolution on the Greek standoff over the bond swap. And Europe’s GDP number reported earlier this week was better than expected.

I don’t think the pause or even a pullback in stocks will take very long. There is broad participation in the rally so far and that is a good sign. And stocks are fairly or even a little undervalued right now. I would use any pullback to add to stocks and gold.

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