Is the economy bouncing back?

After months of stalling, there are signs the recovery is about to rev up.

By Anthony Mirhaydari Nov 21, 2012 3:55PM

Financial Stock Chart -- Kick Images, Photodisc, Getty ImagesSince September's surge of exuberance, stocks have been sliding lower on a combination of fears over the fiscal cliff, eurozone tremors, and a dramatic pullback in the investment component of GDP growth. But here's the thing: We could be on the cusp of at least a short-term turnaround.

Republicans and Democrats seem to be inching towards a compromise that would push tough choices on tax hikes, spending cuts, and entitlement reforms into 2013. And there are signs that, after cutting new orders and drawing down inventories, businesses are being forced to increase spending again.


If so, a rebound in business activity could push stocks out of their funk for the next few months as we enter what's historically a strong seasonal period for the market. Here's why it's time to shed the fear, and embrace a little holiday cheer.


JPMorgan economist Bruce Kasman notes that early reports on October's economic activity bolsters his confidence that growth is poised to lift through the end of the year. For one, JPMorgan's global PMI manufacturing survey has turned around as the new orders index rose and the finished goods inventories index fell for the second consecutive month. That's been a reliable signal of a positive shift in growth in the past.


Growth is being led by the United States, as well as Mexico, Canada, Brazil, Denmark, India, Indonesia, Ireland, Russia, the Netherlands, and Turkey.


The early signs of hope were confirmed Friday by the Markit Flash U.S. PMI manufacturing survey for November, which strengthened to a five-month high signaling a "moderate improvement" in manufacturing conditions. Both production output and new order growth accelerated to a five-month high while employment grew at its best clip since July.



As the chart above shows, the rebound should start being confirmed in the Fed's measure of manufacturing output soon.


Hurricane Sandy might be clouding the data somewhat, but nonetheless the team at Capital Economics believes the data implied manufacturing output will start expanding at a three-month-over-three-month annualized rate of around 3%; rather than contracting at a 3% as it did in October.


Combined with my expectation of additional Federal Reserve policy easing at its December meeting, overly pessimistic investors, and the growing likelihood that Greece will receive not only its next bailout aid disbursement -- but a debt reduction and bailout program extension as well -- I think this manufacturing rebound will force traders to cover their shorts and provide the kind of buying power to the market that hasn't been seen for months.



For now, I continue to recommend a focus on crude oil, silver, and individual energy names including Tesoro (TSO) and Valero (VLO). Both positions are up more than 7% since I added them to the Edge Letter Sample Portfolio earlier this week.


Disclosure: Anthony has recommended TSO and VLO to his clients.


Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.



Nov 21, 2012 7:21PM

Now we are just hoping that Congress will succeed in kicking the can into 2013.  My how our expectations have lowered. No one even noticed the French downgrade but that would have crashed things on a normal day.  Seems like everyone is just getting numb to bad news.


Anthony's short term turnaround might be too short to time.  For me anyway.

Nov 21, 2012 7:04PM

The economy typically comes back from a recession with increasing vigor as it feeds upon itself.  Sales beget hiring and more sales as the reverse of a recession where falling sales begets loss of jobs.  The economy has been sluggish and slow to pick up steam.  Select areas are seeing increasing sales just as select areas are seeing a resurgence in home sales and falling inventory.

Unless they screw the pooch, this bull market will continue to have legs.

Nov 21, 2012 6:58PM
I'm still hoping for an improved economy, even if I haven't seen it yet.  I'm not a fan of Obama, but I'd like to see his policies work in order to get Americans back to work.  So far, I don't feel or see any improvement.  My shopping dollar has really shrunk, so now I'm beginning to spend very carefully. The rising prices of food and gas and electricity, and everything else is really beginning to hurt...and I have a job.
Nov 21, 2012 6:33PM
Obamacare taxes kick in on employers in January.  If its the job kill like they think plus the fact that our government is facing a possible shut down on March 1, 2013, recovery, you got to be kidding.
Nov 21, 2012 5:53PM
No real growth as long as Bernanke keeps interest rates at  zero

Nov 21, 2012 5:50PM


I know somebody who disagrees with Tony.  That White Plains bankruptcy judge who just gave Hostess the green light to bring down the hammer on 18,000 damn fools out on strike.


At least we'll be able to start whittling down the nation's deficit with the additional government revenue from selling legal pot.


Merry Christmas.





Nov 21, 2012 5:34PM
The economy could be much better if W/S and it's brokers and traders were more optimistic then pessimistic. Why are people not spending any money?  Because Wall Street always gives the gloom and doom story day in and day out. If people spent money, sales would increase and jobs would not be lost. But find me one person who works for W/S who would admit that they are some of the problem?  I wouldn't bet my house on ever hearing that in the near future!!!!!
Nov 21, 2012 5:29PM
The stock market may see a bounce but the general economy is in for a long slog. High unemployment, struggling housing, high energy price and food prices coupled with low paying jobs for those able to find work all will weigh on this "recovery".  Now add a tax hike ala Obamacare and a tax rate hike even if limited to the $250K and up crowd and you have a perfect storm for a recession.
Nov 21, 2012 5:18PM
"JPMorgan economist Bruce Kasman notes that early reports on October's economic activity bolsters his confidence that growth is poised to lift through the end of the year."

Is he willing to put his career where his prediction is? All indicators point to catastrophic failure not wishful steering by fake banks and phony financiers. You Tony... will be whining doom and gloom next week when big retailers try to explain the total bust of holiday rush. Unemployed people don't buy up their credit cards. Generation Airhead accounts for 70% of all existing debt. The cards may swipe but the authorization isn't going to happen. Let's not leave out the Wal-Mart strike on Friday. Without an immediate resolution, strikers will tell their 10 friends and so on and so on. Wall Street doesn't shop in Wal-Mart, union workers "did".
Nov 21, 2012 5:06PM
This guy's theme should be "any way the wind blows" or something like that. It was a week ago he was predicting doom forever. A month ago growth forever. etc... My dog can predict stuff better than him.
Nov 21, 2012 4:56PM
Nov 21, 2012 4:13PM
All that's bouncing around is the freshly printed money.
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