Not a V-shaped Recovery

June 29, 2010 at 7:29 pm Leave a comment

Given the rapid bounce of the markets from its March 2009 low to this April high, some commentators were wondering if the economic recovery will be V-shaped as well — that is, sharp and rapid as the right half of the letter V.  Well, it appears that this is not going to be the case.  The culprits are the usual suspects, slow job growth and weak demand for housing.  We can also add European debt problems to that list as well.

Nevertheless, the situation is quite different from 2008.  Unemployment is still high, but it is decreasing, and hiring is definitely picking up.  Housing prices actually increased 3.8% nationwide year-over-year.   So, while this is likely not a V-shaped recovery, it is a recovery nevertheless.  Most likely, however, it is going to feature slow growth rates and will extend over a long period of time.

As usual, the markets react to this or any kind of uncertainty with high volatility.  The traders don’t want to be blindsided like they were in 2008, and so they may be overreacting to any negative piece of news that comes out.   The upcoming second quarter earnings should provide some clarity and guidance for the market going forward.  Ultimately, stock market is a reflection of corporate earnings, and for most companies, earnings are still going higher, and corporate cash is at record levels.

Entry filed under: Market Conditions.

From Crisis to Crisis Unusually Uncertain

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Blog Author

Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.

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