By James Saft
(Reuters) – With risks of a U.S. recession mounting, it is shaping up to be a hairy summer for investors.
The recent run of U.S. economic data has been disappointing, with weak employment and manufacturing numbers. The Economic Cycle Research Institute’s four-week moving average of its key gauge has now been negative for eight straight weeks, and consumer spending is down for the third month in a row. Moreover, and more crucially, government spending reductions pose a threat, both this year and next.
Secondly, the United States, at the very least, will have to contend with deflationary waves from Europe for the foreseeable future.
Even if the ECB steps in to rescue Spain — or whoever ails next — it seems very likely that Europe will act as a drag as well as a source of risk and uncertainty.
Finally, we might be in the first earnings season since 2009 in which earnings at S&P 500 companies actually sink. The run has been disappointing thus far, with Apple showing that perhaps not enough people need new phones every six to nine months, and Zynga Inc demonstrating the limits of a business strategy based on virtual soil and make-believe manure.