Second Half Slowdown

I believe the economy will start weakening in the second half of the year. Stimulus spending will be lower on a year over year basis in the second half of the year and many municipalities are still cutting budgets. Comps will be tougher as the economy started recovering in the second half of last year. Housing will be especially pressured as the housing tax credit will have expired, the FHA has tightened guidelines recently and many mortgages are going to reset. I think all this adds up to a second half slowdown.

At the same time there are some positive developments in the stock market. We have seen a recent pickup in M&A and LBO activity. Last night SAP announced they will acquire Sybase for nearly $6 billion and private equity buyers want to pay $12 billion for FIS.There has also been a pickup in stock buyback activity.

I still believe that we will see a stock market slide happen in concert with a second half slowdown. However, the positive developments I mentioned make timing a drop a lot trickier. As such I am going to take my cues from my short term indicators and right now they are not pointing to a drop.

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