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Investing Specialists

GDP Will Bounce Back

The first-quarter GDP contraction is not indicative of the economy's underlying strength and should snap back to growth mode in the second quarter.

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Bonds were about the only place to hide last week as most world equity markets declined meaningfully, especially emerging markets, in addition to commodity markets. Although the bulk of U.S. economic news was positive, the negative first-quarter GDP report frightened investors on Friday, hitting any sector that depends on a healthy world growth rate. Conversely, bonds, which do better in a weak economic environment, showed healthy gains.

Emerging markets were down almost 4% for the week as Chinese brokerage firms imposed higher margin requirements. That drove the Shanghai index down by over 6% on Thursday, which had knock-on effects on other emerging markets. The decline in emerging markets was far worse than the 1%-2% declines in most world equity markets and a 1.6% decline in commodity markets. On-again off-again debt negotiations between Greece and the EU seemed to move stocks around a lot during a week without a lot of other news. Heavy merger activity continued this week with  Broadcom (BRCM) the biggest target. This activity did little to get markets very excited, though.

Robert Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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