Monday, June 4, 2012
The May jobs report has raised doubts about the U.S. economy’s growth momentum. It is perhaps premature to mark down second quarter GDP growth expectations solely based on last week’s disappointing jobs numbers, but that is the most likely direction revisions will take should data continue to disappoint in the coming days.
Unfortunately we don’t have much to look forward to on the economic calendar this week that could give us more visibility on this key issue. Today’s Factory Orders report coming out a little later will not help much in that effort, though Tuesday’s service-sector ISM reading is about the only top-tier economic report on deck this week. We will most likely have to wait another few weeks before we see the June data coming out at the start of next month.
When you combine these renewed growth worries about the U.S. economy with the already underway Chinese slowdown and ever present European drama, we get a sense of the unsettling backdrop for stocks going forward. If GDP growth expectations start coming down, it will not take much to prompt downward adjustments to earnings expectations. A number of major dates on the European calendar, ranging from Greek elections to another supposedly significant summit meeting towards the end of the month, will keep market participants on edge.
It appears to be becoming a seasonal pattern for us. We start the year with high hopes for the economy and the market, but the mood starts going sour at the onset of Spring. It happened like that in the last two years and this year is shaping up to be not much different either. Typically Bernanke will come to the market’s rescue. But what good would more bond purchases do this time with treasury yields already at record low levels? The Fed’s Operation Twist is on track to end soon and all eyes will be on the central bank to announce something similar when they meet later this month.
Sheraz Mian
Director of Research
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