Most of us can concede that the financial markets as well as the economy is in a delicate period, and just the slightest shock (economic or geo-politcal) could send the market in either direction very quickly. No one can truly predict what is going to happen within the economy or corporate profits in the future. But, some leading indicators of economic activity are suggesting that a double dip recession 'could occur'.
We are concentrating our focus this week on two very important macro-economic data points. First is Industrial Production, which measures manufacturing activity, and second is Consumer Sentiment, which illustrate the consumers overall perspective on future prosperity. Each of the indicators have soften over the past couple of months, which is concerning because during a normal economic recovery these two indicators should be improving not turning negative.
The correction the markets have experienced over the last couple of months suggest that the economy is slowing. The uncertainty hanging over the financial markets revolves around the question "is the economy heading for a double-dip recession". Remember, the stock market is a leading indicator to future economic activity, and the pause to the downside we are currently experiencing within the stock market suggests the worst may be over in the short-term. But uncertainty continues to be the main investment theme.
In order to properly position our investment portfolios, we have taken a neutral stance by implementing a market hedge. The Consumer Sentiment and Industrial Production numbers that will be reported this week will give us better understanding of the direction of the economy. If the numbers improve we will remove our market hedge and become more bullish in the near term. As for now though, the gains we have seen over the last week within the stock market may be short lived.
by David A. Mascio
