Brian Wesbury and Bob Stein at First Trust Advisors are calling for the ever-popular “V-shaped recovery.” Why? Because, they say, the current downturn can be explained as a media-manufactured, self-fulfilling prophesy. Fundamentals are strong, but businesses and consumers are sitting on their hands until some of the hysteria abates and they feel comfortable rates have bottomed and the economy is back on track. (Via US News and World Report):
In our view, the economy has been slow in the first half of 2008 due to an almost irrational level of fear and risk aversion. This risk aversion can be seen in very rapid growth in money market mutual fund assets—from $2.4 trillion a year ago to roughly $3.5 trillion today…. [R]ate cuts, which are likely to end this week, have temporarily created a self-fulfilling prophecy of economic slowness, as some businesses and consumers postpone activity until they are confident rates have hit bottom. But that scenario makes us confident in a sharp rebound in the second half of the year. With rates days away from their bottom, the full force of the Fed’s loose monetary policy is about to be unleashed. Faster growth is just around the corner.
In other words, Wesbury and Stein are standing firm behind the market consensus, which calls for S&P 500 EPS to accelerate to 70%-plus growth by the end of this year.
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