Corporate bonds usually provide one of the better warning signals of a recession. This is probably because corporate bond investors get a small premium return in a healthy environment, but can lose substantially in the event of default. We therefore monitor the difference in yield between corporate and Treasury bonds, known as the credit spread, to gauge the risk of recession. Given the "unusually uncertain" economic backdrop that Chairman Bernanke describes and the decline in Treasury yields since April, credit spreads remain remarkably stable and are well below levels that would indicate a double dip. This reflects credit markets' confidence in the monetary and / or fiscal policy backstops for the economy in our view. High yield credit default swap (CDS) spreads, which reflect the cost of insuring against default, have remained mostly stable through the summer, around their current level of 558, amid a record pace of high yield debt issuance. Thus credit markets are signalling few economic concerns. Most corporations have had little trouble refinancing as cash flows have improved and balance sheets have strengthened. In sum, despite the recent economic soft patch, the drop in Treasury yields, and the lack of further imminent monetary or fiscal stimulus, we think the risk of a double-dip recession is not high enough to warrant a further de-risking of portfolios.

David Fuller's view A further reason why the US economy may just avoid a double-dip recession is that there is another world out there where economies are booming. They will most likely buy a sufficient quantity of American agricultural products, airplanes and other manufactured goods for the US economy to avoid two consecutive quarters of negative GDP.

But what about the US stock market?

The soft economy is obviously damaging in terms of investor sentiment. There is little of the 'feel good' factor in the USA these days, to put it mildly. Nevertheless, monetary policy remains extremely benign. Multinational companies leveraged to the global economy are benefiting from strong Asian-led growth, and their consolidated earnings get a further boost from the soft US dollar.

Fullermoney maintains that large-cap, multinational US companies with covered yields of at least 3.5% are a much better investment today than low-yielding bonds or high-risk 'junk' debt.

The S&P 500 Index may continue to range within The Weekly View's Decision Box for a while longer but we also think the lower range will hold. This view is based on hard evidence - not hopes. See for yourself by using the principle of Commonality, as taught at The Chart Seminar. Review the world's stock market indices in the Chart Library and you will see that far more of them are testing their upper boundaries or even breaking to the upside, rather than to the downside. (See also Eoin's survey below.)