By Bill Stone of PNC Wealth Management
"It is sometimes advantageous to be unseen, although it is most oftenrather wearing on the nerves."
- Ralph Ellison,
The recent soft patch in economic data has renewed serious concerns aboutthe sustainability of the current economic recovery. Although it is not abnormal to have periods of relative economic weakness during a recovery, fears of an economic double-dip have dominated headlines.
There are those who have thought that this recovery has been invisible from the start, and even some who once thought they glimpsed it now wonder if the rebound isdisappearing before their eyes.
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Our view remains that the economic recovery is sustainable, but that the recovery will be subpar. Our U.S. real GDP growth estimates for calendar years 2010 and 2011 are both 2.9%. We continue to monitor economic indicators closely for signs of weakness in our current forecast and remain vigilant around any change in our baseline forecast.
As we predicted in our 2010 outlook, corporate earnings have been the mostvisible portion of this recovery. So far both the U.S. economy and
earnings have followed the script we outlined at the beginning of the year.
The U.S. economy has grown at a half-speed pace, while earnings have followed a V-shaped trajectory. In addition to the positive implications of the earnings growth for valuations, we believe corporations' ability to invest and spend should provide positive support for the sustainability of the economic recovery.
The economic data have continued to wear on the nerves of both bulls and bears. There hasn't been enough evidence that a self-sustaining recovery has engaged, but there hasn't been disastrous news indicating that another serious downturn is a
. This leaves the market in a constant state of reaction to high-frequency economic data. This leads us to the view that investors should expect the tiresome volatility and increased correlationsof risk assets to continue for some time.
Though the timing is unclear, we expect stocks to benefit as the market comes to see our view that the highest-probability outcome is not a double-dip recession, but rather a half-speed economic recovery. This should unfold as the recovery becomes more visible -- most prominently through total job growth as the quarter progresses. Though there are many risks in the current investment environment, we believe current stock valuationsprovide a reasonable offset and an attractive risk vs. reward relativeto other investment opportunities currently available.
Bill Stone is the Chief Investment Strategist for PNC Wealth Management and PNC Institutional Investments with over $100 billion in assets under management. He is a member of PNC's Investment Policy Committee and is responsible for defining the asset allocations and portfolio strategies used throughout the organization to advise individual and institutional investors. Stone is a cum laude and honor's program graduate of the University of Dayton with a bachelor's degree in finance. He earned a master's of business administration from the Katz Graduate School of Business at the University of Pittsburgh. In addition, he holds the Chartered Financial Analyst� designation and is a Chartered Market Technician. Stone has been quoted in many publications including The Wall Street Journal, Financial Times, Barron's, Fortune, Forbes and USA Today. He is regularly interviewed by Associated Press and Reuters. He is also regularly interviewed on CNBC and Fox Business for his market insights.