JPMorgan Sees Green Shoots – US-FOREX.US
As we head into the short trading week in the U.S., a JPMorgan Chase strategist is predicting that several signs of an economic recovery will emerge.JPMorgan Funds’ chief market strategist David Kelly says that increases in manufacturing production, mortgage applications and vehicle sales combined with a forecast decrease in the number of Americans who continue to claim unemployment benefits all point to the beginning of a global rebound. He expects both consumer confidence and pending home sales to retract this month but claims that’s of little consequence because the economy has been spared further big corporate collapses, making the consumer confidence pullback a temporary phenomenon. “There are signs that the world economy is deteriorating less quickly,” Kelly says. “Even in weeks of mixed economic data, so long as we’re seeing no financial shock, it’s telling me the economy is still on a track to recover.”Analysts at other banks similarly see green shoots spouting. Last week Barclays issued a report predicting the recession’s end as industrial production increases and the energy, materials and technology sectors stand poised to make a comeback.
Evidence for a rebound in manufacturing, Kelly says, comes from data reported by regional federal reserves, like Philadelphia and Kansas City, which tend to gather information about sectors under their purview earlier in the month than national number crunchers.
As a result, Kelly expects the manufacturing sector to lead the economic recovery. Companies-like GM and Chrysler-halted production earlier this year in order to reduce inventory. But now orders for manufacturing output are increasing and Kelly predicts the sector will stabilize as production picks back up again. Investors who are wary of U.S. manufacturers like Ford Motor
might look to Toyota Motor Corporation
or Honda Motor Co.
Though auto sales are still at a slow pace they have been increasing and production hasn’t kept up with even the recent, muted demand.Once the recovery progresses, Kelly believes technology and health care industries can benefit and, further off, even financial stocks will rally. “Financials can benefit not so much from the economic rebound but from the stance of the Federal Reserve,” he says. “There’s plenty of potential in financials. There’re just plenty of question marks as well.” As for unemployment, the report says, even if the nation’s overall figure creeps up to 9.6% for June from May’s 9.4%, the size of that increase is significantly smaller than in past months.Another good sign: the number of Americans continuing to claim unemployment benefits dropped in June. In March, the government reported 5,567,000 continued claims. That total soared to 6,293,000 in April and rose to 6,751,000 in May. Now Kelly is predicting a 13,000 drop, to 6,738,000, in June. Along with two economists at First Trust Advisors, Forbes columnists Brian S. Wesbury and Robert Stein, Kelly believes that recovery is V-shaped. But he cautioned investors about the speed and strength of a fledgling recovery.”I’m a nervous steady-improvement guy,” Kelly says. “The slope heading up is going to be a lot shallower than the slope going down.”