Unexpectedly Intriguing!
June 14, 2011

David Rosenberg is predicting a 99% chance of recession in 2012 (HT: Barry Ritholtz). Calling it a "second recession" as opposed to a double dip, we wondered if the stock market is currently making the same prediction.

After all, if we look just at the expected future earnings data for the stock market, 2012 would just be a year where the economy looks to be simply stagnant.

To see if a recession might need be in the cards, we'll need to look at the stock market's expected dividends per share. Our chart below reveals what we found when looking at quarterly dividends per share for the S&P 500 through the second quarter of 2012, which is currently as far into the future as we can see:

S&P 500 Historic and Expected Quarterly Dividends per Share, 2009Q1 through 2012Q2, as of 14 June 2011

At the very least, the extreme reduction in cash dividends expected to be paid out in the second quarter of 2012 as compared to the first quarter suggests that the U.S. economy is at least in store for a "microrecession" in 2012. By our definition, a microrecession is a period of flat or negative economic growth that is either relatively minor or short in duration.

However, at this point in time, the dividend futures for the stock market are not signalling what is to come beyond that quarter, so we cannot yet determine if David Rosenberg will be right. We'll need to wait at least another quarter to see if a full-fledged recession is lying in wait in 2012.

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