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"Unjustified Euphoria" in Markets About Economic Recovery

Posted Apr 16, 2009 01:09pm EDT by Aaron Task in Investing, Recession
Related: ^DJI, ^GSPC, SPY, DIA, BGU, TLT, TBT
Several data points this week - most notably today's housing construction numbers and Tuesday's retail sales report - have called into question the "glimmers of hope" President Obama talked about and the stock market has been betting on.

There has been "slightly optimistic spin" from Washington and "unjustified euphoria" in markets about prospects for a near-term recovery, says Nariman Behravesh, chief economist at IHS Global Insights.

For that reason, he believes the Dow will have a hard time sustaining a rally much above the 8000 level for a sustained period. But at the same time, the economists believe the negativity was too high at the March lows and says the economy is "approaching a bottom."

The very fact economic numbers are starting to produced mixed results - some upside, some downside surprises - is a good leading indicator of an economy approaching a trough, says Behravesh, author of Spin-Free Economics.

He is forecasting a "true bottom" - or flat GDP growth - in the third quarter, followed by a "fairly weak" recovery in late 2009-early 2010.

That might prove disappointing to investors betting today on a robust recovery in late 2009. Looking further ahead, Behravesh does believe the economy will "pick up steam" in the second half of 2010, based on part on all the fiscal and monetary stimulus already in place.

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