Wall Street Ends Q2 On Mixed Note

Fear keeps trumping rationality. This past weekend, the financial press went out of its way to evoke the idea of a ‘doom scenario’ for stocks while claiming a bear market already well-underway. We even heard some supposed media gurus stating that the American stock market could be finished forever. Nothing new there, I have heard this before many times and interestingly enough, always close to bottoms.

It is true, the DJIA has now dropped 20% from its peak last year however, rather than calling this drop ‘a bear market’ or worst, statistically speaking – a correction is what’s realistically really happening. But, we understand the glorifying aspect of reporters and how that relates to selling newspapers. However, while fear sells papers, fact remains that such analysis of market fluctuation are very misleading and could cause a lot of investors to panic at the wrong time.

And before we go any further, keep in mind – our nation is still rich. So, let’s just drop this absurdity of a US economy and its imminent cataclysmic prospects and let’s get back to reality and seriously focus on facts rather than hype and fear-mongering.

The reality is that the sharp increase in advisor pessimism could be blamed on tumbling index action and the increased belief that the economy is about to implode. Rarely has this planted pessimism been as widespread and persistently unrepentant as it is currently.

Yet, the economy has proved every single recessionist and depressionist wrong time and time again. Excluding home building which is roughly 4% of the economy, real GDP has expanded at a 3.3% annualized rate in the past three quarters. Including the effects of housing, total real GDP grew 1.0% at an annual rate in Q1 fiscal ’08. Moreover, Q2 fiscal ’08 real GDP growth will likely accelerate to a 2% growth rate and the third quarter will post a similar increase if net exports continue strong. Growth for Q3 fiscal ’08 could easily exceed 3%.

Additionally, despite collapsing consumer confidence, consumer spending has risen significantly. Real consumption is up at a 3.1% annual rate in the past three months. The May real (inflation adjusted) personal consumption expenditure (PCE) data released on Friday rose a much stronger than expected 0.4%. That followed a 0.2% increase in April. Furthermore, shipments of core capital goods (excluding defense and aircraft) are up at a 9.4% rate.

Meanwhile, home sales appear to be bottoming. Based on all of these data, one would think that it would end some of the more intense pessimism. Bottome line: The market has it wrong on the overall economic view. Never has a recession been declared based on such GDP data.

In other news today

On this holiday shortened week, the major averages started today’s session slightly higher, before dipping modestly into negative territory after the first thirty minutes of trading. The Dow and Nasdaq were higher at midsession in volatile trading as crude oil eased from record highs.

Oil earlier today hit a new record above $143 per barrel, on comments from the commander of Iran’s Revolutionary Guards, who warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles. However, oil continued trading below $140 closing the session on the Nymex just $0.12 higher, finishing at $140.33 p/b.

H&R Block (HRB) announced a positive sales and earnings per share surprise for its most recent quarter. Meanwhile, Campbell Soup (CPB) sees 2008 full-year earnings per share results growing at the upper end of its 5% – 7% range when compared with prior year results.

The day’s only economic report was a measure of Midwest factory activity. The Chicago Purchasing Managers Index, a regional manufacturing report, came in at 49.6 for June, suggesting expansion and surprising many analysts who expected a decline of 48.0.

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