Good Monday morning.
We begin the week with a few very simple premises confronting investors:
• Will the Europeans resolve their own credit crisis?
• Have stocks entered a new trading range?
• Are fears of a US recession overblown?
Europe: The news out of Europe was surprisingly bad: Lots of bickering and infighting over resolving the Greek problem. Regardless, European markets opened higher across the board (they gave back most of the gains as of this writing). The Euro Summit failure was offset by signs of growth in Asia — both in China and Japan.
Equities: Regardless, the market reaction to no resolution is quite telling. A month ago, this news would likely have brought a 3-4% drop in European bourses, and a 250 point drop in US equities.
Broader US equities may be entering a new trading range. As we discussed Friday, the S&P500 broke out of their prior 3 month range. It is noteworthy that while the Dow, Nasdaq and SPX have managed to rise, the small cap Russell2000 is still mired in its trading range.
Recession: Funny what a strong rally does; the increasing drumbeat of recession possibilities — from ECRI to the Fed chief himself — seem to have been muted.
I am far less enamored of markets as a savvy forecaster. Its track record is spotty at best. Our recession expectations remains better than 50% over the next 18 months.
Why? Its the Jobs, stupid!