Don't Count Out the Stock Market

"We don't expect a recession, but we do expect slow growth" and higher unemployment, wrote Ed Hyman, chairman of the ISI Group, a survey-heavy research firm, on Jan. 14. Gloomy forecasts in steel, retail and advertising spending appear to back the doomsayers, he noted, but ISI's own model, which correctly forecast the 2001 recession, isn't pointing to another one right now.

At Charles Schwab, chief investment strategist Liz Ann Sonders pegged recession odds at better than 50%, but added that getting the official determination will matter little to investors. "Calling a recession is tricky stuff. Market timing is treacherous, and so is trying to invest based on this data," she wrote. "The caller and record keeper of recessions is the National Bureau of Economic Research (NBER), and it's notoriously late in calling recessions, having dated the past two after they were already complete. So, if you're a trader/market timer, and you're waiting until the recession is declared to sell everything, you'll probably be too late and you could miss a heck of an eventual move higher to boot!"

A soft landing might well result in a stronger stock market, but it will be a volatile one in any case, she predicted.

Noted optimist Ed Yardeni, president of Yardeni Research, continues to believe that global economic resilience will stave off the worst. His updated forecast Thursday wasn't rosy, but in the context of the recent housing, mortgage, financial and credit woes, it could have been worse.

"We're still predicting the economy will 'Muddle Through,' with 1.5%-2.0% GDP growth during [the first half of the year] and a pickup to around 3.0% during [the second half of the year], thanks to the aggressive easing by the Fed," Yardeni wrote. "We expect them to keep the federal funds rate at 3.0% over the remainder of the year."