Rose's "Coffee Cup" Read: Market Insight April 2010

by Rose Greene, CFP on May 10, 2010

This month I’m featuring an important research White Paper written by Burt White, LPL Financial’s Chief Investment Officer. I call it a “Coffee Cup” read, because you’ll want to settle in with a cup of joe and contemplate his foresight. Below are highlights, and I recommend downloading the full PDF report for your convenience. -Rose

The Phase After the Road to Recovery

Burt White
Chief Investment Officer
LPL Financial

From late 2008 until early 2010 the markets followed a road to recovery — they found a bottom, established equilibrium between buyers and sellers, emerged from recession to recovery, and shifted from a contracting to a rebounding economy.

In the next stage of the journey we expect to see the markets go from recession to recovery to growth. The market enters a period where the catalyst for growth will likely shift from stimulus-led to business-led and consumer-led expansion. The three stages of the Transition to Sustainable Growth are:

Transition Stage 1 — Committing to the Recovery (stage we have just entered): The market is unsure if this recovery is really sustainable. As this idea becomes accepted as reality, consumers and businesses become committed to the recovery and begin to spend to fuel future growth.

Transition Stage 2 — Preparing for Life Without Help: With consumers and businesses having committed to growth, the central banks of major countries start to hint at undertaking and even begin the tightening cycle. Markets and the economy must come to grips with the notion of growth without being propped up by government stimulus and accommodative policies.

Transition Stage 3 — The Market On Its Own Two Feet: With the tightening cycle across the globe in full force, growth shifts entirely onto the backs of consumers and businesses.

Highlights

  • - We expect a gain in real Gross Domestic Product (GDP) in the first quarter of 2010 of about 4.0%.
  • - For all of 2010, we expect 3 – 4% real GDP growth, with a stronger first half (3 – 5%) and then a slowdown in the second half (2 – 3%).
  • - The unemployment rate edged down to 9.7% in the first quarter of 2010, from 10.1% in late 2009. It remains uncomfortably high, and is unlikely to move below 9.0% before year-end 2010.
  • - We do not expect any tightening of monetary policy by the Fed until late fall.
  • - One of the key drivers of the better-than-expected consumer spending data has been the recovery in consumer net worth over the past year.
  • - Powered by nearly unprecedented gains in manufacturing, business capital spending is on track to post a fourth consecutive quarter-over-quarter gain in the first quarter of 2010.
  • - Housing is the biggest risk to our forecast, as it was the collapse in the housing market that led to the mortgage meltdown and global financial crisis of 2008/2009.
  • - The labor market is another potential stumbling block for the economy as 2010 unfolds.
  • - Out-of-control deficits and spending are an issue, but they are not an impediment to growth in 2010 or even 2011.



For The Full Report, Download Here.



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Tagged as: Burt White, Chief Investment Officer, Financial News, LPL Financial, LPL Financial Research, Market Insight, Sustainable Growth

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