J.P. Morgan Funds' David Kelly: Expect a solid - but not spectacular - economic recovery

The economic numbers due out this week will be important in narrowing estimates of current economic momentum.
JUN 01, 2010
The following is a weekly commentary written by David Kelly, chief market strategist at JPMorgan Funds. It's like being stuck in rush-hour traffic on route to an important meeting. Intellectually, you know that traffic was always likely to be slow and you also know that, provided there is no accident or road-works ahead of you, you should make the meeting on time. But you still feel pretty uncomfortable about the pace of your progress. American investors looking at the pace of the economic recovery may feel a similar discomfort. Recent numbers include a slight uptick in unemployment claims and slight downward revision to first-quarter GDP. Logically, it shouldn't be that big of a deal – the economy will likely continue to produce jobs, profits will likely continue to recover and economic growth will likely come in at roughly 3.5% for the second quarter. However, given the uncertainty being generated by the European debt crisis and the very cautious and sour mood of the American public, an economy growing at 4% or 5% in the second quarter would do a lot more to calm frayed nerves. The economic numbers due out this week will be important in narrowing estimates of current economic momentum. On the positive side, Pending Home Sales may have risen again in April as buyers rushed to beat the expiration of the home-buyer tax credit. In addition, Light Vehicle Sales could post a modest gain, if sales over the Memorial Day weekend make up for appears to have been an otherwise lackluster month. On the negative side, the ISM Manufacturing and Non-Manufacturing Indices could dip from recently high readings. In addition, Productivity Growth for the first quarter will likely be revised down from an initial very strong reading. The tie-breaker will be jobs numbers both in Initial Unemployment Claims due out on Thursday and the May Employment Report due out on Friday. The claims data will be watched nervously to see if there is any sign of a renewed downward trend, following a surprising backup two weeks ago. The May employment report will be distorted by the addition of close to half a million temporary Census jobs. However, the crucial number will be private sector payroll growth and this may well be lower than last month's reading, based on higher frequency employment data. Overall, this week's numbers should show a solid but not spectacular economic recovery. The question remains: Will a slow but steady recovery be enough to offset the pulses of financial turmoil and economic pessimism still emanating from the other side of the Atlantic? Without a clear answer to this question, investors may want to maintain a very balanced portfolio stance in the short run, despite valuation metrics which suggest a long-term overweight to stocks and underweight to Treasuries.

Latest News

No succession plan? No worries. Just practice in place
No succession plan? No worries. Just practice in place

While industry statistics pointing to a succession crisis can cause alarm, advisor-owners should be free to consider a middle path between staying solo and catching the surging wave of M&A.

Research highlights growing need for personalized retirement solutions as investors age
Research highlights growing need for personalized retirement solutions as investors age

New joint research by T. Rowe Price, MIT, and Stanford University finds more diverse asset allocations among older participants.

Advisor moves: RIA Farther hails Q2 recruiting record, Raymond James nabs $300M team from Edward Jones
Advisor moves: RIA Farther hails Q2 recruiting record, Raymond James nabs $300M team from Edward Jones

With its asset pipeline bursting past $13 billion, Farther is looking to build more momentum with three new managing directors.

Insured Retirement Institute urges Labor Department to retain annuity safe harbor
Insured Retirement Institute urges Labor Department to retain annuity safe harbor

A Department of Labor proposal to scrap a regulatory provision under ERISA could create uncertainty for fiduciaries, the trade association argues.

LPL Financial sticking to its guns with retaining 90% of Commonwealth's financial advisors
LPL Financial sticking to its guns with retaining 90% of Commonwealth's financial advisors

"We continue to feel confident about our ability to capture 90%," LPL CEO Rich Steinmeier told analysts during the firm's 2nd quarter earnings call.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.