5 Stocks To Buy On Stronger GDP Data

The U.S. economy expanded at a faster pace in the first quarter than earlier estimated, according to data released on Tuesday. As the country entered its eighth year of economic expansion, other indicators such as housing and retail sales also remained promising. However, underlying fears exist about whether growth is robust enough to withstand the fallout of a recent Brexit.

The most significant upward revisions which stand out are the extent of spending on software, research and development. In the backdrop of falling expenditure on equipment and weak gains made by several services it may be a good idea to bet on stocks from these categories.

Final Q1 Estimate Revised Upward

The “third” estimate from the Bureau of Economic Analysis showed that first quarter output of goods and services increased at an annual rate of 1.1%, higher than the consensus estimate of a 1% increase. Further, first-quarter GDP data was revised upward from the previously estimated 0.8% rise.

However, first quarter GDP growth was much lower than the rate of 1.4% recorded in the fourth quarter of 2015. Business spending declined for the second consecutive quarter. Also, consumer expenditure growth was revised downward from 1.9% to 1.5%. This was primarily due to low spending levels on services, primarily recreation and transportation.

Ultimately, there were two major reasons for the upward revision in the estimate for first quarter GDP. Firstly, exports increased by 0.3%, contrary to the earlier estimate of a decline of 2%. More importantly, business expenditure on software, research and development increased by 4.4% versus the earlier estimate of a 0.1% decline.  

Are Brexit Fears for Real?

The shock result of the recent British referendum has led several economists and market watchers to believe that the fallout could weigh on GDP growth over the upcoming six quarters. Most of this is likely to be due to lower business expenditure. Rising uncertainty could result in several companies pushing back or reducing the scale of new projects.

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