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What Ugly Q1 GDP Says About the Stock Market

First-quarter GDP numbers were mighty ugly, with the U.S. economy growing at just a 0.1% rate. Not only is that disappointing on its face, it’s disappointing in regards to of estimates from major firms like Bloomberg and Dow Jones that were calling for 1.1% GDP growth.

Interestingly enough, however, the headline didn’t send investors running for the hills on Wednesday, and the market seems like it will be hanging tough today, too.

So what gives?

Well, for starters investors have been mildly encouraged by what is turning out to be a decent earnings season. Corporate profits remain strong, even in the face of limited revenue growth.

Also, many analysts are blaming poor weather across January and February that kept consumer spending and seasonal hiring as a minimum.

Lastly, most of the GDP weakness came from trade and inventories cutting out  0.8% and 0.6%, respectively, from GDP. 

Investors seem to be willing to give the U.S. economy a pass on these ugly GDP numbers for now. And ultimately, that’s a good thing for stocks — because it shows that there’s still confidence out there. If investors weren’t willing to give stocks the benefit of the doubt, it could be a very bad sign for the mood on Wall Street as we enter the second half.

I remain cautiously optimistic that improvements in unemployment will stick and that consumer spending is slowly on the rise. The million-dollar question, of course, is whether business investment will brighten up in 2014 or not.

Corporate earnings have been juiced by buybacks and efficiencies, but we need real capital investment in infrastructure and productivity to keep the market — and the U.S. economy broadly — moving forward.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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