June 23, 2009: Pressure on GDP Data to Deliver
June 23rd, 2009
In a Wall Street Journal article on June 22, the topic of when and how the Fed will begin to reverse course from its current policies of hyper-stimulus was discussed. The “when” is a tricky question. As the markets have certainly firmed up in recent weeks, debates undoubtedly raged within strategy meetings at investment firms as to whether the firming-up is a short-term blip that will evaporate OR a real and sustainable turning-the-corner move that will be looked back upon with bold declarations of, “That was the bottom, just as we expected”.
Regardless of what point we are in the cycle, the WSJ article points out an ominous fact. According to sources cited at Marcoeconomic Advisers, the economy is on track to contract by approximately 1% in Q2. (Q1 Final GDP comes out this Thursday and is expected to be -5.7%). If Q1 contracts as expected and then Q2 follows suit, it would be the third and fourth consecutive quarters of contraction; a feat not seen since the Great depression.
If Economic data in coming weeks does not show vast improvement, investors will begin to seriously doubt the prospects of the Economy truly bottoming any time soon. Further, if comparisons of the current Economic landscape to that of the Great Depression start working their way around trading desks, the bullish psychology that took hold in March will likely turn decidedly bearish.
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