This has resulted in downward adjustments to second quarter GDP growth estimates in recent days from the over-3% level to the 2% to 2.5% range. But expectations for the second half of the year have largely held up at this stage, with the economy expected to resume above-3% growth in the third quarter.
Driving this outlook is the view that the ongoing softness has resulted from temporary factors which will get reversed going forward. The disruptive impact from Japan’s earthquake on the manufacturing sector and the restraining effect of high fuel prices on consumer spending are two of the major such temporary factors that have been weighing on economic activities lately.
And both of these clouds have started to lift, albeit at a very slow pace, improving the odds that economic momentum will get back on track in the coming days. The Fed Chief himself referred to the outlook of a second half recovery in his speech on Tuesday.
But stocks need to see some evidence of this second-half recovery before buying into this outlook. And we will likely have to wait till the early part of next month at the earliest to get such evidence. The second-quarter earnings season will also get underway in the second half of July, which has the potential to work as a catalyst for stocks.
As such, I don’t expect the current downtrend to reverse course in the remainder of this month, notwithstanding the occasional positive trading session here and there.
Crude Inventories are scheduled to be released today at 10:30 AM EST. For the week ending May 27, crude inventories increased by 2.9 million barrels from the previous week to 373.8 million barrels.
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