That's what last week's big week of data left investors with, who were clamoring for clues as to where exactly we are in this economy. That despite most of the released data appearing to be pretty good evidence that jobs and growth in the economy are getting better.
After all, the economy apparently grew 4% in the second quarter, bouncing back completely from the 2.1% contraction in the first quarter. One would think that, coupled with a report that showed 209,000 new jobs created for the month of July, would make investors cheer. Even the Federal Reserve backed up the bullish case -- signaling investors that the economy is finally nearing its expectations after five years of sluggishness and several years of "quantitative easing," the economic stimulus plan of buying U.S. Treasury bonds every month.
Yet, on the very day the strong gross domestic product data were released, it was met by the worst sell-off in stocks in months -- as concerns about a debt crisis in
What's the worry? Plenty, some say. "The U.S. growth bulls can blame
McCullough says it's critical to look at GDP for the first and second quarter together. Second-quarter GDP was up, he says, mainly because the first quarter was so bad, down 2.1%. "You have to combine them and annualize the first half of 2014, then you see GDP was only up 0.87%. That's not in the area code of the Fed's 3% (to) 4% 'forecast,'" he says.
When you consider what the first quarter initially looked like, with an initial reading of growth only to be revised downward to ultimately show contraction, it's fair to question the first reading of the second quarter of 4% growth ahead of new revisions to come.
Even so, if the economy isn't rebounding strongly enough, the thinking is that if the Fed keeps interest rates very low for as long as possible, it should help keep the stock market at its elevated levels. With rock-bottom rates, there are simply few alternatives to get any return.
We could be looking at that Goldilocks economy once again -- not too hot and not too cold, which is the sweet spot for the stock market. But McCullough warns not to get too excited about the Fed managing rates because another worry looms: inflation. "As the economy slows, (the Fed will) print money and devalue the dollar. In real U.S. dollars, that only inflates the average American's cost of living -- and perversely, slows the economy faster."
Even a week that brought supposedly good news about economic growth fell on deaf ears. Perhaps the biggest threat to an ongoing bull market is such uncertainty, suggesting the caution around stocks could persist over the near term. Or at least until the GDP and jobs readings are released next month.
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