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July 31, 2009
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The pace of economic contraction slowed to a 1.0% pace in the second-quarter, far better than economists had expected. (The consensus forecast called for a 1.5% drop.)
More importantly, the Q2 number cements the observation many of us have been drawing -- the economy is starting to hit bottom. Several economic reports have shown signs of a slowing pace of deterioration over the past few months. And, in the most recent Beige Book, the Fed discussed "stabilization" 5 times.
Though the number will be we cheered by the bulls, it is critical to understand that bottoming and growth are 2 very different things. More importantly, the recovery will not feel like a recovery to many Americans. Jobs will continue to be cut and the "pent-up demand" will not change into a dramatic increase in spending anytime soon.
Furthermore, the economy still has a long way to go just to get back to breakeven. GDP fell at a 6.4% pace in the first quarter and a 5.4% pace in the fourth quarter. Even if the more optimistic forecasts prove to be correct, the economy will end 2010 with pretty much not showing any growth during the first 2 years of the Obama presidency.
For stocks, this means a prolonged trading range will likely form. That is not a bad thing, but it's not a bull market rally either. Investors, therefore, need to use a combination of both less-economically sensitive stocks and those that could benefit from an improving economy. For example, in Zacks ETF Trader, I'm using a mix of consumer staples, health care and technology funds.
Stock investors could follow a similar strategy by looking at companies such as Texas Instruments (TXN), IBM (IBM), Amgen (AMGN) and Pepsi Bottling Group (PBG).
Read the full analyst report on "TXN"
Read the full analyst report on "IBM"
Read the full analyst report on "AMGN"
Read the full analyst report on "PBG"
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