One can feel the shudder in the crowd as the number prints across the screen in big letters: “GDP Missed Expectations” and boy did it – by a good clip.

Ok, so there – it is out of the way. Gasp, numbers are smaller than the crowd of experts expected. Not really – but it sure sells press.

As we should all know by now, it is has become pretty normal for the first reading of GDP each quarter to end up being somewhere between 50% and 100% – short. The next two revisions should likely increase the number a bit. While still very fresh, let’s take a little snapshot with more data to come in your next morning note:

Thank consumers – they did the heavy lifting with spending growing 4.2% – yet still with $8.35 Trillion in the bank!

Inventory reduction was a drag as it knocked off almost 1.2% from GDP

History tells us when one quarter is a big inventory drag, we often get the inventory rebuild bump over the next couple quarters

Business investment wilted a bit as well. This should not be a surprise as we burn through the last quarter of two of ugly numbers on the energy side of the economy.

Business spending on equipment did fall at a 3.5 percent rate, but that is a vast improvement over Q1 when it declined at a 9.5 percent pace.

We have passed the worst comps associated with the falling energy-related investment. These areas of weakness in the last 6 quarters should stop being a headwind in another quarter or two.

Don’t count me as one in the shadows shivering in disbelief. The data points collectively are right where they should be until we get the energy shift burned through the pipeline.

Besides, the PMI’s have been consistently telling us better things are in store as the energy headwinds wane. The latest being from Chicago:

That matches nicely with the Dallas data sent yesterday. All-in-all, one can be confident that the revisions will likely show Q2 to have been better than the first read. We surely should have learned this lesson by now right?

The Big Question?

Will this data be the match that lights the fuse to a summer swoon?

Will the market – perched on “neutral” since a day or two after its all-time new highs were set – finally “fail on the breakout?”

Keep this in mind: while it seems like we have been going up every day – we haven’t.

In fact, the markets have traded in a very narrow 1% range for the last 12 trade sessions. That is pretty surprising when you think about it. But it does mesh with what we have previously referred to as “altitude sickness” so many investors suffer at “all-time new highs”.

Think of it this way:

You are standing at the base of a mountain set to walk the rails up to the top. After 100 yards into your walk, 11 feet up from ground level, a fall might result in scrapes and bruises. After a bit more and 50 feet up, a fall would hurt more. At several hundred feet up – death is clearly a risk. Halfway through your trek up the mountain, the idea of even looking over the edge will be terrifying to some – with thoughts of a fall being nightmarish.

Same mountain – same pathway – only difference? What we think. It’s the way the masses see markets.

We are at the end of July – with 7 months down in 2016 – and peering into the hazy doldrums of August. If we are going to get a summer swoon, this “weak GDP data” may be the match to light the fuse.

We can see from the latest bullish sentiment data out of AAII that the crowd has already made that assumption:

Now these are the same charts – one I have added a hand drawn red line back in time to give you a sense of how deep-seeded the fear is in the investor audience mindset.

As stated above, recall the S&P is basically where it was two weeks ago (maybe a bit lower after today is done). Yes, we did see a strong rally for two weeks before that, but with stocks just hanging around near record levels, the idea of standing still and pausing has been reason enough for individual investors to become increasingly fearful.

According to the weekly survey from AAII, bullish sentiment declined from 35.43% down to 31.25%, marking the 39th straight week of below average bullish sentiment.

In any other world, if I followed up that record setting statement by telling you that stocks were at all-time highs, you would think I had lost my mind.

In Summary

Remember the current underneath – no the surface waves. Nearly everyday that goes by now, I am reminded of the last demographic shift. The Boomers and the unexpected demand from 78 million new consumers were a shock to the system. The seeds planted then grew into oak trees and a market that went up 18 times over.

Let’s keep this simple: Ignore the noise. The basic fundamental issue is repeating itself today. Focus on people – waves of them.

While inventories are tightening in fear of another 2008-2009, a massive wave of demand is coming. Demand in the Barbell Economy we are not ready for – demand which will birth the next monster, oddly enough, probably inflation if I were to guess.

So, stay focused – if this latest GDP “weakness” does not kick in the summer swoon, I say the same thing I did way back in the early 80’s:

The market is telling you something more important than the data.

The underlying current is moving strongly.

Staying focused on today’s news does not prepare you for what’s next.

Have a great summer weekend. Enjoy family and friends. Be safe and well.

Until we see you again, may your journey be grand and your legacy significant.