Double Dip Recession?

So what’s really going on? After a terrible 2^nd quarter, the market posted its first Positive month in July (7%) since April. US Equities for the year are basically flat for the year. The truth is we’re in the Dog Days of summer for the markets. Volume on the Big Board remains light, as many are on summer vacations.  

One week we hear “double dip recession”; the following week “economy is doing fine.”  That’s what sells though, “Drama” – it doesn’t do much to help you make smart decisions about your money.

We continue to see mixed date – mixed, but favoring economic recovery, NOT a double dip.  The data confirms what we already know, that with housing weak and consumer confidence weak, key locomotives for economic growth are still missing (Job Growth).  That said, consumer spending LED the recovery, business is leading the NEXT phase.

Here are some excerpts from another Economist I like to read, Jerry Webman, PHD, CFA from Oppenheimer:

Double Dip Fears: second quarter GDP growth slowed to a 2.4% (from 3.7% in Q1)

Recovery: Business investment expanded 17% in the quarter, as investments in computers and business equipment continued to soar (23% since the April 2009 bottom)

Recovery: Corporate earnings continued to surprise to the upside with 82% of companies reporting thus far beating earnings expectations. 

Recovery: It is not uncommon for real GDP to slow to 2% during an economic recovery.  The recoveries following the 1991 and 2001 recessions also slowed to near-stall speed evoking fears at the time of a pending double-dip recession and raising concerns that policymakers were not doing enough.  In both instances, equity markets fell under pressure as investors ultimately underestimated the strength of the recoveries before recovering along with the economy.  The data so far are consistent with a reprise of this pattern.

Double Dip Fears: Weak Consumer Confidence numbers in June (after the market falling in May)

Recovery: Consumers apparently feel more confident at the stores than they do while answering survey questions.  U.S. chain store sales posted a 3.0% year-over-year comparable-store gain in June with luxury and department stores posting the strongest gains.

Recovery: New home sales bounce off all-time low (up 23.6% in June), marking the first good piece of housing data in months. 

Our best estimate at present is that nervous markets and uncertainty levels will keep market volatility higher over the summer months. However, the backdrop of strengthening corporate profits and a recovering economy should push equity prices higher, although it will take some patience to get there.

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