U.S. will dodge 'double-dip' recession, says S&P

The United States will avoid a “double dip” recession, with real gross-domestic-product growth topping 2% next year, according to Standard & Poor's Corp. The research firm is estimating a 1.7% annualized growth rate in the fourth quarter, and a rate of 2.4% by the end of next year, Sam Stovall, S&P's chief investment strategist, said in a conference call today. The corporate earnings free-fall will end this year, and bottom lines should improve in 2010, Mr. Stovall said. While many observers have been worried about lackluster revenue growth, Standard & Poor's estimates 3% top-line growth this quarter, and an 8% revenue gain for U.S. public companies next year. Mr. Stovall said that cyclical stocks tend to outperform as the economy recovers from a recession, a pattern that “tends to hold into the second year of a recovery.” Standard & Poor's is recommending an overweight to consumer cyclical, energy, industrials and technology stocks. “Value tends to beat growth, and smaller-caps tend to trounce” larger-company stocks during a recovery, Mr. Stovall added. Standard & Poor's analysts are also recommending the Franklin Growth Fund (FKGRX), the T. Rowe Price Dividend Growth fund (PRDGX) and the Vanguard Selected Value Fund (VASVX). The funds rank highly under Standard & Poor's mutual-fund ranking system, and are focused on cyclical sectors.