Recession Scenarios Abound
Kevin Cook here filling in for Steve this week.
The "wait 'n see" mentality is slowly settling into the market. After a mild recession has been quickly priced into stocks, this is a calmer view of the investing landscape where fear and volatility subside and institutional investors process the economic data to build new projections about how much worse it could get.
What are they waiting for? More visibility about economic growth and the impact that last month's GDP revisions will have on corporate earnings estimates. Remember, even though we are starting to get lower macro growth forecasts from the big investment research houses, we haven't even begun to see the company-specific downward earnings revisions that could come from analysts in September -- and into October earnings season.
If stocks are flirting with the "cliff", as I call the S&P 1,100 level, oil, copper, and the euro – 3 good barometers of risk appetite – are holding up well above $80, near $4, and around $1.43 respectively. Speaking of the euro, we still wait to see if the political wrangling in that monetary "dis-union" has large ripple effects that tilt the US closer to recession, especially if a banking crisis unfolds or European growth slips further than expected.
Until we know more about the economy and its vulnerabilities – and many are just waiting to see what Ben Bernanke says at Jackson Hole on Friday – stocks could easily dip below 1,100 in another wave of recession fears. But bargain hunters will be rewarded "buying the dips and selling the rips." I've called this a trader's market for the next two months where you don't need to worry about missing the bottom, and need only trade the swings when good stocks go on sale.
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Senior Stock Strategist, Zacks Investment Research
Today's Top Stories: Tuesday- August 23, 2011
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