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Stocks over-discount economic recovery
The graph below from Citi economist Steven Wieting (courtesy of Clusterstock – Business Insider) conveys a message I have been propagating for a while, i.e. that stocks have moved up too quickly relative to the pace of the economic recovery. Being a forward-looking mechanism it is common for the S&P 500 Index (red line) to rebound ahead of industrial production (blue line), only to then stall or correct as the economy plays “catch up”. Whichever way I look at the fundamentals, stocks on this occasion have undoubtedly priced in more than what economic growth, and corporate earnings, can deliver in the foreseeable future. In short: The gap between the red and blue lines on the right-hand side of the chart has become too stretched and and stocks therefore require a much-needed consolidation/pullback as we are now witnessing.
Source: Clusterstock – Business Insider, May 5, 2010.
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![[Most Recent Charts from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_4.gif)
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By Prieur du Plessis, on May 6th, 2010 posted in: 
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