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A Classic Case of Kick the Can

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Monday, June 30, 2014

This is Mark Vickery, covering for Sheraz Mian while he is away this week.

Back when Zacks CFAs and economists were predicting that the housing bubble was going to pop, the one thing they all said was, “We don’t know when, but it’s coming.” One analyst, referencing how his charts looked, said, “We’ve all got our hockey sticks out (pointed down), but we keep pushing them forward.” But today, we see quite a different problem…

Zacks Director of Research Sheraz Mian has been articulating this narrative for around 8 solid quarters or more: growth expectations are hopeful, until they’re not. We originally expected to see the U.S. economy kicking into high gear back in 2013, and now we’re wondering if we won’t see any real traction until 2015. It’s a classic case of “Kick the Can.”

But with last week’s GDP read having fallen 2.9% in Q1, it’s clear this “kick the can” narrative is a relatively responsible one. Add to this global tensions (specifically Iraq — anything potentially hitting the oil & gas supply is always going to have an effect on markets) and it’s perfectly reasonable to expect an overall major economic rebound to delay at least another quarter. Stinks for everyone who’d gambled on the “sooner.”

We’re also in the middle of a classic case of the summer slow period prior to Q2 earnings season. We’re in a four-day work week due to the July 4th holiday on Friday. Also, most publicly-traded companies’ final day of the quarter is today, so in a couple weeks we’ll see what the quarter has sown. But while there were many people who had been very hopeful of economic growth by now a few quarters ago, clearly their expectations have been tempered for the near term.

The bad weather conditions during Q1 can only be an excuse for so long, but the latest GDP read is one which does, in fact, fall under that umbrella. Elsewhere, MannKind’s (MNKD - Free Report) inhalable insulin treatment has been accepted by the FDA, allowing that stock to post big gains in the pre-market, and the possibility of an oil and gas port strike on the West Coast of the U.S. may have a negative affect on the market today. Until Thursday’s fresh jobs report, we’ll likely be be slogging through this week of trading.

Mark Vickery
Senior Editor

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