As the U.S. economy drifts around in a seemingly endless holding pattern, market watchers are closely looking for any signs of growth in the fourth quarter—and considering whether it's time yet to get back into the domestic stock market.
"For the economy, my fourth-quarter outlook is 'more of the same.' The recent data has suggested that we're doing neither a double-dip recession nor going into a reacceleration of the economy. We're in a slow-growth mode, meaning growth of 2% to 2.5% in GDP," said John Canally, chief economist for LPL Financial, the large independent broker-dealer based in Boston, Charlotte and San Diego.
The Commerce Department's latest revision on second-quarter gross domestic product showed that the U.S. economy grew at a pace of 1.7%. That was a bit higher than August's 1.6% revision, but nowhere near the 3.7% growth rate seen in the first quarter when the government's stimulus plan was still having an effect. Economists' consensus is that third-quarter growth has continued to hover just below 2%.
While analysts including Canally don't expect any quick fixes to the nation's slow recovery, they also keep waiting for the right economic key that will now lock down consumers' fears and open businesses to new growth and hiring.
'That First Week in November Could Be Key'
"The key catalyst to the fourth quarter will be the next announcement that the Fed will make in the middle of the quarter on Nov. 3," Canally said. "The Federal Open Market Committee (FOMC) may say, 'We've seen enough and we need to do another round of quantitative easing, with X billion or trillion dollars."
Still, in the fourth quarter, Canally said, he expects neither a reacceleration nor a double-dip recession, but more of "a long slow slog." One week it might be double dip, and the next week it might look like a reacceleration, but the center of gravity will be in the 2% to 3% range, which won't be enough to push the unemployment rate lower, he predicted.
"That first week in November could be key," Canally said. "We'll get the election results on Tuesday, the FOMC announcement on Wednesday, and the October jobs report on Friday. That's going to be a crucial week for the fourth quarter, and it's only a month away."
Neuberger Berman: Long-Term Bonds Will Drop Sharply When Interest Rates Start to Move Higher
However, co-portfolio managers Sandy Pomeroy and Rich Levine of the Neuberger Berman Equity Income Fund, a five-star Morningstar-rated $386 million fund, warned that investors should not get carried away by the market volatility that may come in response to the first week of November's events.
Indeed, the market may outperform expectations, said Pomeroy, who characterized Neuberger Berman as a long-term investment house.
"We saw a big [equity market] movement in September, which we think was driven by the idea that everyone's expectations were so low that any bit of positive news led to a rally, which is what we saw in September," Pomeroy said. "We feel that investors' expectations are still very low, and equities are pretty cheap. It would be entirely possible to see
the market continue to do well throughout the rest of the year. We feel pretty encouraged by that point of view, and we're invested for that."
