What a difference a day makes. Yesterday morning, the
situation looked dire for stocks. Headline revenue misses from
(NYSE:IBM) and Goldman Sachs (NYSE:GS) took
the Dow Industrials Average down well over 100 points at the open.
But that initial decline marked the lows for the day, and
stock prices rallied the entire day and finished with some impressive gains.
I discussed the apparent disconnect between earnings and
valuations yesterday. Sure, some big companies have missed revenue estimates
while still meeting or beating earnings estimates. But at the same time,
valuations already reflected a good amount of pessimism about 2Q earnings.
The stock market has been tough lately, no doubt. But
yesterday’s reversal may be a sign that investors are ready to accept
corporate earnings as a sign that the economy is improving and put the fears
of another round of recession on the back burner.
dreaded “double-dip” of recession, the first thing to note is that such
events are very rare. In fact, most agree that the U.S. has only experienced one episode of
double-dip recession, and that occurred in 1980-1981.
That recession started mild and then got worse. This time
around the initial shock to the economy was severe and doesn’t fit the
profile for double-dip recession.
Fears of double-dip recession are based on three things:
unemployment, housing and debt. Obviously, these are self-reinforcing in that
rising unemployment means rising defaults which puts more pressure on banks
and the federal government.
The double-dip scenario depends on unemployment rising from
current levels. As we now stand, consumer spending has been solid, corporate
spending has been downright strong, and we have the potential for renewed
demand from China.
Another jump in unemployment seems unlikely. Still, we need
to see corporations expand their spending to include hiring.
I have no problem going on the record and saying I don’t see
the double-dip recession happening. Rather, I think the economy stabilizes as
unemployment grinds higher. Corporations have record amounts of cash on their
books. That will translate into hiring.
Each of the 3
TradeMaster Jason Cimpl‘s Special Opportunity
Report on commercial real estate made 10% moves off their lows yesterday. And
it will take another 50% move to take them to their 52-week highs. Even then,
these stocks will be far below their all time highs.
There simply aren’t many stocks with this kind of upside
potential in the stock market. So if you’re looking for market-beating gains
to energize your portfolio, you can check out Jason’s commercial real estate
Copper prices are
up again today. This is an important indication that demand from
China will strengthen.
Right now, China is an afterthought. Chinese stocks
have been in a 1-year bear market. But don’t overlook the connection
between China‘s actions to slow
its economy and the weak economic data we saw for the U.S. during the second quarter.
On the contrary, China‘s tightening campaign is largely
responsible for our weak 2Q. And the likelihood that China will now allow its economy to
resume its expansion is very good news for the U.S. economy.
As always, thanks
for all of your comments, and please keep them coming:[email protected]m