Monday, August 17, 2009

More Reflections On The Economy, Growth & The Fed

Today's US equity market sell-off seems to be following my expectations, as expressed in these recent posts here, here and here.

Allegedly following foreign equity markets' reactions to Friday's dismal consumer confidence survey report, the S&P has fallen 2.3% as I write this just before the market close.

Suddenly, the fall swoon of which I had written could be nigh.

Or not. As one pundit on the floor of the NYSE put it today, it depends on volume. And I agree with that. But Lowe's tepid earnings report, coming after various analyses explaining why it should have been good, will probably go a long way to dampen investor expectations now.

Never mind last year's comparable quarter results. I think investors are smart enough to not dwell on that metric.

The real key seems to be the trajectory of the US economy. It's not enough to sustain a recovery rally that Bernanke thinks the economy is 'leveling.'

Printing money, borrowing it and having government spending it will do a lot in the short term, or could do so. But for long term equity gains, the private sector has to resume growth. And there's currently nothing presaging that.

I keep returning to the inventory situation. So many pundits simply assume inventories will be rebuilt, resulting in manufacturing activity, chain reactions among suppliers, higher payrolls, and, voila, growth and recovery!

So if that doesn't happen, what then?

Rely on some 'shovel ready' road projects? Not enough.

It's not clear that today's sell-off is the beginning of the next 'big one.' But it's having some observable, significant effects on our equity options signals already. Certainly altering their prior trends.

I wouldn't be betting on a much higher S&P very soon. The CNBC pundits who predicted such a market gain by later this year seem to be naively optimistic, in my opinion.

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