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Bullish investors might be in for a rude-awakening come first quarter earnings season if one is to place great stock in GDP trends.

First-quarter GDP is tracking up a mere 1.4%, according to UBS, slower than the 2.6% growth rate in the fourth quarter. If hit, it would mark the slowest pace of GDP growth in three quarters. It would also represent the first sequential slowdown in more than a year. The main culprit: a surprise slowdown in consumption in the December through February time-frame. 

Decelerating GDP growth may mean several sectors in the S&P 500 could be experiencing worse than expected first quarter sales and profits. Most notable would be the retailers off the sluggish pace of consumption. 

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One positive aspect, says UBS, is that the first quarter GDP slowdown could prove fleeting. 

"Faster labor income growth and smaller tax payments support strength in consumer spending, and while retail sales have been soft on a monthly basis since December, the year over year pace has not faltered -- implying more momentum than the quarterly comparison would suggest," UBS points out. "Energy price gains argue for ongoing energy-sector business investment, and we see signs of rotation into non-energy investment as well."

They conclude, "All spell faster underlying growth than the sub-1½% GDP pace we're tracking for in the first quarter."


Source: UBS