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The Stock Market Can Only Ignore The Economy For So Long, says Strategist

 

SPOKANE, WA -- Prominent investment strategist, Jim Shepherd, says the stock market can't ignore the economy indefinitely and he expects the markets to turn down again when it becomes clearer to investors that the future for stocks is not what is currently being presented.

He cites as an example the current stock market rally that was started after unexpectedly strong GDP data was released for the first quarter. The data showed a surprisingly strong reading of 2% growth against an expected reading of 1%.

Shepherd points out that the GDP number is frequently subject to revision after the data has been compiled and computed accurately. His calculations indicate that we will probably have a revision that is much lower than the previously reported number. When everything is taken into consideration, according to Shepherd, the economy will be reporting anemic growth that may be bordering on negative. He says the chances of the economy entering into an official recession have been showing up in several sectors during the last year.

Week to week unemployment numbers, which are also subject to manipulation by the Labor Department, are frequently revised at a later date. However the long-term unemployment trend is clearly rising and is indicating that the economy is slowing rapidly. When combined with falling sales of autos, airplanes and technical equipment it is unrealistic to expect we are still in a strong and growing economy that should be reflected in rising stock prices.

The current multiples of stocks still remain at levels that are beyond historic norms and are more in line with expectations of a strengthening economy than one that is clearly slowing. And falling earning reports do not reflect an improving climate for stocks.