(Double Dip Recession poll updated for Thursday economic data)

NEW YORK ( TheStreet) -- When the week began it looked as if the markets were ready to discount any negative data points, with a triple-digit gain in the Dow Jones Industrial Average quickly attained. The markets race ahead even though the latest data from the Institute of Supply Management non-manufacturing index indicated sluggish growth.

However, by the end of trading on Tuesday the big market gains had been pared back to modest levels, and the double dip recession debate continued for another day, and the question of whether investors would continue to de-risk their investment portfolios. That debate just won't rest, after the latest batch of economic data on Wednesday and Thursday morning.

Wednesday seemed, at least on the surface, to argue against a double dip recession, with a triple digit surge in the Dow Jones Industrial Average, winners on the big board beating out losers like European teams have beaten South American rivals in the World Cup, and the price of crude oil surging.

Yet Wednesday was also notable for a lack of any economic data of the type that tends to move the markets. There was a notable earnings surprise from the financial sector, with State Street ( STT) saying it would easily beat Street estimates for its second quarter earnings, and that helped to life U.S. financial stocks and the broader markets.

Crude oil got an after-market lift on Wednesday when a crude inventory report from the American Petroleum Institute showed a decline in petroleum stockpiles much steeper than expected. Oil futures contracts rose in after-hours trading.

The lift in crude oil, and the equities markets, continued on Thursday morning, with the government's key initial jobless claims weekly report showing a larger than expected decline in initial claims, and the largest drop in jobless claims since mid-April. Oil rallied above $75, reaching as high as $75.90 early in the Thursday trading session.

Overseas, an expected decision by the European Central Bank to leave a key interest rate unchanged, at 1%, and the International Monetary Fund upping its global growth forecast helped to buoy the markets. The ECB also said that investors were too pessimistic about the Euro Zone's ability to deal with the sovereign debt crisis, and the euro reached a level it hadn't seen since May.

The big stock gains and the surge in the crude oil price was trimmed by midday Thursday, as the major market indexes returned to flat trading. Even though the closely watched crude inventory data report from the government showed a bigger than anticipated decline in crude stockpiles -- though not as large as the API numbers indicated -- gasoline and distillate inventory rose.

Overall, the outlook for the U.S. economic recovery is still uncertain, a situation attested to by the latest batch of monthly sales reports from the major U.S. chain retailers, released on Thursday morning. While some of the biggest retailers like Costco saw sales jump, overall retail sales in June were a mixed bag as a result of a reticent consumer spending attitude.

There hasn't been a shortage of economic data. The big equity market gains on Wednesday, and the Thursday morning trading swing from a surge to a ripple, may be no more than an indication that the markets had oversold a little, even if a robust recovery is far from a safe call for investors to make at this point.

The ISM non-manufacturing index, the initial jobless claims, and the retail sales reports, are just the latest economic pawns of the double-dip recession debate and suggest, if nothing more dire, a sluggish economic growth profile. The ISM non-manufacturing activity grew at a slower rate in June than expected, but that sluggish growth rate was the expectation of many market watchers. The dip in the ISM non-manufacturing index was greater than forecast -- to a level of 53.8 -- worse than the expected drop to 54.9 from May's reading of 55.4.

It was a worse drop than forecast for the latest closely watched U.S. economic data point, but the ISM data is still holding above the 50 point mark, above which anything is considered a sign of economic growth.

The market prognosticators were quickly out with a wide range of opinions about the importance of the latest ISM data. Some fund managers argued that the ISM non-manufacturing index indicated nothing more than a more moderate growth rate for the U.S. economy. Growth is growth, we'll take what we can get, was more or less the argument. In fact, some managers said that the moderate growth for the non-manufacturing sector -- even dropping more from its May level than expected -- was proof that the double dip fears were overblown.

Downplaying individual economic reports is par for the course among market watchers, and the jobless claims report has its own crowd of naysayers.

A double dip specific to the housing market may be the most likely scenario. New homes sales are down. Existing home sales are down. No one knows when the housing sector will truly recover without the homebuyer tax credit to prop up its shaky foundation.

Yet the housing sector isn't the only place where the government has been playing a large role in making the economic recovery look stronger than some believe it to really be. Last Friday's payroll report showed a second straight month of weak job growth in the private sector, and more and more Census jobs that had helped to prop up overall employment numbers were eliminated.

Retail stocks were driven down on fears that less government support will also spell doom for consumer spending. There were major headlines in the past few days about the extent to which the retail players fear going over a cliff when it comes to sales and are making preemptive moves. Wal-Mart's ( WMT) Sam's Club announced a plan to offer loans to small businesses to buttress spending. Thursday's retail sales reports didn't settle this issue.

In ISM data land, the ISM manufacturing index reported a 3.5-point drop in June, the largest since December 2008.

Within the ISM non-manufacturing data released on Tuesday, the new orders index fell to 54.4, better than the broad index level in June, and giving some market watchers hope that the slowdown in economic growth was not the harbinger of a double-dip recession that has been bandied about it with each and every major U.S. economic data point in recent weeks.

Yet when a dip in a major U.S. economic indicator like the ISM non-manufacturing index is not just expected, but is worse than expectations, it might seem to defy logic to treat it as a bullish talking point.

Some took the latest ISM data in stride, but not as a positive. To them, the ISM may still be showing moderate growth, but that's just because the data is not yet reflecting how bad things really are, and the double-dip recession is still coming.

It's clear that fears of the double-dip recession are being met by a cautious optimism as the U.S. continues to sputter ahead with some sort of economic recovery. Yet investors don't look overly optimistic about stocks.

U.S. economic bellwether Alcoa ( AA) managed to finish up a combined 5% on Tuesday and Wednesday, and had the largest gain among Dow components on Tuesday. Of course, Alcoa shares are still down 36% year-to-date, the biggest year-to-date drop among Dow stocks. Caterpillar ( CAT) also managed to finish the two days of trading between Tuesday and Wednesday up 5%.

Wednesday's action could be an aberration, or merely indicative of the choppy trading sessions ahead. Indeed, the recent trading action and latest dip in economic data reports including the ISM indexes raises the question, yet again, about the double dip recession and how to play stocks. Do you think the double dip recession is on the horizon and long-term stock trades should be avoided? Take our poll below to see what TheStreet thinks.

Do you think a double dip recession is on the horizon and long-term stock trades should be avoided?

The latest economic data prove no double dip is coming.
Forget economic data reports, the double dip is ahead.
I don't trust individual economic data reports as a market proxy.
Stay away from stocks, regardless of the data.
Buy: excess fear has created market value.

-- Written by Eric Rosenbaum from New York.

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