This blog post originally appeared on RealMoney Silver on July 9 at 8:05 a.m. EDT.Since I have been out for a few days of meaningful and persistent downside pressure, let's frame the market expectations that have led up to my current outlook for stocks over the balance of the summer and into the fall. Like Shakespeare's Polonius, I adopted a neutral view of U.S. equities in late May in a column entitled " Neither a Bull nor a Bear Be." As stocks continued to rise, I argued in early June on CNBC's "The Kudlow Report" that, while I remained confident that a generational low would not likely be breached for years (if not forever), equity valuations had nonetheless more than discounted the second derivative improvement in the economy, and stocks were running ahead of the real economy. In addition, I further opined a month ago:
- More tangible signs of economic traction are necessary before the markets move higher.
- The trajectory of economic growth will be shallow and will likely disappoint the equity markets during the second half of 2009.
- Massive cost cutting has resulted in better-than-expected first-quarter 2009 profits, but it holds a downside as significant employee layoffs (and a still-weakened consumer) threaten the seeds of domestic economic growth over the intermediate term.
- Savings rates will remain high, and personal consumption expenditures will remain low for an extended period of time.
- The specter of rising taxes and higher interest rates in late 2009/early 2010 will likely impact an already fragile recovery in the economy and in the markets -- a double-dip is due then.
- Near term the market looked increasingly exposed and the upside was certainly capped.