Recession over according to Shrainka, at Edward Jones
Investment firm Edward Jones’ Chief Market Strategist, Alan F. Skrainka, CFA, has been quoted as saying: “The Recession Is Over.”
According to Shrainka, the U.S. economy shrank at a slower pace in the second quarter of 2009 – a clear indication that the recession plaguing the economy since December 2007 is drawing to a close. He writes:
“The economy was forecasted to shrink at a 1.5% pace, according to a survey of 78 economists by Bloomberg News. However, as Shrainka points out, gross domestic product (GDP) contracted at a less-than-projected 1% annual rate after shrinking 6.4% in the prior three months, according to a report from the Commerce Department released at the end of July.
Edward Jones projects that it now looks as though the recession has ended (most likely in June) and that July will actually be the first month of recovery. They say that it’s also likely the end of the recession will not be officially recognized for many months.
“We’re optimistic for a variety of reasons” Shrainka says, “including stronger stock market performance, the rate of change in non farm payrolls, increased factory orders, and finally, the Commerce Department’s Index of Leading Economic Indicators (which has been up for three consecutive months). In addition, recent reports seem to confirm the housing slump and the manufacturing decline have eased.”
Edward Jones also observes that housing starts rose in June, and industrial production shrank at the slowest pace in eight months, according to U.S. Government reports this month. Economists now project the economy will grow at an average 1.5% pace from July to December,according to a Bloomberg survey taken in early July.
What Lower Stock Prices Mean to Me
Psychiatrists often use “word association” to gain a greater understanding of the human mind. What words would you associate with the latest big drop in stock prices? If you’re like most people, your words might include the following:
Crisis, Great Depression, Bailouts, Unemployment, Recession, Deflation, Inflation, Subprime loans, CEO compensation, Meltdown, Scandals, 201(k).”
According to Edward Jones, “studies show so many investors buy when they feel good and sell when they feel bad. But, this can be the equivalent of buying high and selling low. However, selling after a terrible 10-year period in the stock market can be a mistake, since good performance often follows bad.” As Edward Jones emphasizes, “historically, when stock prices are lower, future earnings tend to be higher, and vice versa.”
Edward Jones offers an interesting chart to put things in perspective. (See last page of report.) It shows estimated and actual stock market returns for key dates in U.S. financial history. The bottom line? According to Edward Jones, “The estimated and actual returns are fairly close, with the notable exception of the eve of the 1929 stock market crash.”
