Why a Slow Recovery May Be Good for Stocks

Will Swarts SmartMoney April 12, 2010

as The recovery continues, its pace remains uncertain, but some market watchers think that won’t stop stocks from marching higher.William Emmons, assistant vice president and economist at the Federal Reserve Bank of St. Louis, suggested in an April commentary that the recovery will be "prolonged and painful," and the the U.S. will not be able to spend its way back to prosperity."Given the large role of household spending on goods, services and housing in the American and, indeed, the global economy during recent years, newly frugal consumers are likely to keep economic growth rates subdued for some time," he wrote. "In view of American households’ historically high debt burden and the potential for negative feedback effects on income growth itself, a protracted, years-long period of painful adjustment appears likely."Even in a slow economy, Yardeni Research founder and chief economist Ed Yardeni believes stocks will climb, since the Federal Reserve has made it clear it's in no hurry to raise interest rates. "Although the economic recovery is clearly underway, Fed officials aren’t convinced it can be sustained without them keeping the federal funds rate near zero," he wrote Thursday. "As long as we remain in this monetary twilight zone, stock prices should continue to rise, and corrections should be short and shallow. The alternative to stocks is to earn zero in the money markets. That makes it hard to be a bear, unless you are convinced that stocks are about to tank."Taking the opposite view, David Rosenberg, chief economist and strategist at Gluskin Sheff, on Friday suggested that the recent rally was “overbought,” which "underscores the old adage about how markets can stay overvalued a lot longer than people realize. Our overall macro and valuation views have not changed and this market could well see the technicals and the momentum take it even higher in the near term, but that does not mean that investors who have adopted a cautious or prudent view of capital preservation should abandon this strategy."Thomas Lee, a U.S. strategist at J.P. Morgan, looked at the battered housing market for his Friday report and found several promising investment avenues. Because these sectors are still well below their highs, investors can take advantage as the cyclical upturn gets stronger. Home builders should pick up as housing starts increase. Building supplies, timber and home-improvement retailers will see pickups for the same reason, he says, and mortgage insurers should prosper as price stability asserts itself and starts rise, as should regional banks. "This is actually the sweet spot for post-crash/post-bubble groups," he wrote.Some number crunchers agree. Mary Ann Bartels, head of U.S. technical analysis at Bank of America/Merrill Lynch, wrote on April 5 that as the Standard & Poor’s 500 consolidates near 1180, stocks' "pattern favors further upside," although "the risk is that the S&P 500 can peak in the March to May period ahead of a correction into the fall. This implies that 2010 could be a 'sell in May and go away' year for equities." At Citigroup, chief U.S. strategist Tobias Levkovich on April 5 addressed the emotional side of Bartels' midyear correction scenario. Although improved earnings estimates indicate that Wall Street analysts have better views and that there's a better tone to business in general, “there is a nagging sense of doubt still permeating the investment industry,” he said. "Such distrust is perfectly natural and reflects the severe beatings taken by stock market investors back in 2000-02 and in 2007-09 when such allegedly once-in-a-lifetime hits became a twice-in-a-decade phenomenon," he said. "To be fair, the catastrophic outcomes feared 13 months ago have subsided and thus the notion of being at the edge of the abyss has been replaced with a constant sense of foreboding – a kind of dull ache rather than sharp, searing pain that reminds one to be on alert for the next possible blow."There's a growing sense that ache will fade, though not as fast as investors would like.

#relatedStories{float:left; border-right:1px solid #AAAAAA; padding-left:10px;} #moreArticles{float:left; width:230px; padding-left:10px; font-weight:bold;} .divider{border-top:1px solid #AAAAAA; margin-top:10px;} #TB_ajaxContent{clear:both; padding:2px 15px 15px 15px; overflow:auto; text-align:left; line-height:1.4em; background-color:#D0D7DF; line-height:18px;} #tweetArticle{float:left;} #followSection{float:right;} #followSection a{font-weight:bold;} #followSection img{padding:0 2px;} var adsite = "investing.sm"; var adzone = "economy"; /*var domainName = "www.smartmoney.com";*/ .lifeplan .sponsorLogo { padding-top:0px; } .ml .callout-right { padding-top:0px; } .ml .title { font-weight:bold; } Related Stories Why Our Tax System Stinks 6 Investing Strategies for Retiree Wannabes The U.S. Economy Is Growing, and Struggling Find More Articles About: Investing, Economy, Stock Market, ETFs document.write(' Tweet about this article'); Follow SmartMoney on Facebook, Twitter & More: document.write("");

Trackback URL for this story: http://www.smartmoney.com/tb/Jdin.2F9A.3D

What is a Trackback?It is a way to tell us that you have published something that references this story.

How do I send a Trackback? If you blog or mention this story on your website, you can use this Trackback URL to notify us about it. Some blogging software programs can help in sending a Trackback to us.

Click here to read more about Trackbacks.

"The Case for Higher Stock Prices" http://bit.ly/c5gWs9 #jobs

Posted: 9:08 AM EST April 12, 2010 Posted by: traderclubtirol on Twitter

RT @SmartMoney: The Case for Higher Stock Prices http://bit.ly/cQz7xB

Posted: 9:02 AM EST April 12, 2010 Posted by: openeyenews on Twitter

The Case for Higher Stock Prices http://bit.ly/cQz7xB #SMARTMONEY

View All / Post Comment var s_prop49=''; Advertisements The first rule of investing? Investors rule. Get the help and straightforward pricing investors deserve at Schwab.Offer employees Aflac and improve your benefits package at no direct cost.Ally Bank - competitive rates to help you save more. FDIC insured.Economy Survey Corp International Country ReportsHelp2retire Obstacles Merrill Lynch can help you pursue your retirementPlease take a Survey from Safecount.Learn how AXA can help your retirement income keep pace with changing interest rates.MFS®. A broad range of funds for advisors and their clients. Since 1924.SmartMoney Magazine - A smart investment. Subscribe for only $1 an issue.Practice No Risk Trading at optionsXpress var s_prop49=''; Markets My Quotes Most Active $(document).ready(function(){ widget_init(1,"index"); }); //Fidelity 401k Sponsorship HP Call out sponsor={ contID : 19832, presentedBy : 1, sponsorImgSrc : "m1.smartmoney.net/cfscripts/smiads/images/Fidelity_brand_button_120x30.gif", sponsorImgURL : "ad.doubleclick.net/clk;223985137;47744628;v", trackingImgSrc : "" }; $(document).ready( function(){ aol_update(); }); function aol_update(){ $.ajax({ url: "/cfscripts/modules/blogStockFeeds.cfm", success: function(html){ $("#aol-module").html(html); } }); } More on DailyFinance > Most Read Most Emailed Most Comments $(document).ready(function(){ widget_init(2,"viewed"); }); addthis_pub = 'smartmoney.com'; addthis_options = 'digg, delicious, facebook, email, favorites, twitter, newsvine, reddit, google, live, stumbleupon, more'; SmartMoney Mobile | Customer Service | Magazine Customer Service | Subscribe to SmartMoney Magazine | Your Profile | Careers | Contact Us Reprints | About Our Ads | Custom Publishing | License Our Content | Media Kit | Press Room | Events | Site Map | Labs | SMARTMONEY ®, smSmallBiz ™, SmartMoney.com ™, and smSmallBiz.com ™ are trademarks and service marks of Dow Jones & Company, Inc. The layout and "look and feel" of the smartmoney.com and smSmallbiz.com web sites are copyrighted materials of Dow Jones & Company, Inc. © 2010 Dow Jones & Company, Inc. All Rights Reserved. By accessing and using this page, you agree to our Privacy Policy and Terms of Use. All quotes delayed by 15 minutes. Delayed quotes provided by Interactive Data Real-Time Services, Inc.. Historical prices and fundamental data provided by Morningstar, Inc. Mutual fund data provided by Lipper. Mutual Fund NAVs are as of previous day's close. Earnings estimates provided by Zacks Investment Research. Insider trading data provided by Thomson Reuters. Upgrades and downgrades provided by Briefing.com. You Are Viewing: SmartMoney.com — Investing, Saving and Personal Finance. .dqPrice,.dqNetChg { font:bold 10px verdana; line-height:18px; vertical-align:top; } var dynamicQuote=new LiveQuote('lq.smartmoney.net'); if(typeof lqToken=='undefined') var lqToken=""; if(typeof lqData=='undefined') var lqData=""; dynamicQuote.setMatchString("smsym","at"); window.onload = function() { dynamicQuote.initialize(lqToken,lqData); }; var s_account="smglobal" var doSegment="1" var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www."); document.write(unescape("%3Cscript src='" + gaJsHost + "google-analytics.com/ga.js' type='text/javascript'%3E%3C/script%3E")); var pageTracker = _gat._getTracker("UA-381495-1"); pageTracker._setDomainName(".smartmoney.com"); pageTracker._setCampNameKey("cid"); pageTracker._trackPageview(); document.write(''); var rsi_pv=-1; if((getCookie("RSI_PV") != null) && getCookie("RSI_PV") !="" ){ rsi_pv=getCookie("RSI_PV"); } else if((getCookie("SMID") != null) && getCookie("SMID") !="" ){ document.write(''); } var dc_UnitID = 14; var dc_PublisherID = 50198; var dc_AdLinkColor = 'green'; var dc_adprod='ADL'; _qoptions={ qacct:"p-68xeAek2ZcBnw" }; tyntVariables = {"ap":"Read more: "};

Trackback URL for this story: http://www.smartmoney.com/tb/Jdin.2F9A.3D

What is a Trackback?It is a way to tell us that you have published something that references this story.

Why a Slow Recovery May Be Good for Stocks

Related Articles