The World Bank may be driving markets lower today on its disappointing outlook for worldwide economic growth this year – down 2.9% – and a tepid outlook for 2010.   The truth, of course, is that no one knows what’s responsible for moving the markets on any single day. 

Here’s my two cents.  I think we’ve had a tremendous run on “less bad” economic data.  With a torrent of earnings expected next month, investors are on pause, knowing that at some point “better” as opposed to simply “less bad” becomes necessary for the markets to make further progress.  We’re at an important crossroads technically and long time bears like Nouriel Roubini are getting some press once again, knowing that the bulls will be forced to show their hand in the coming weeks when earnings season begins in earnest.  

Will we get the better news?  I suspect we will, but there is enough doubt that some churn and consolidation is likely in the meantime.  The reasons to be positive include unprecedented global easing, a rebound in industrial production following a significant draw down in inventories from many industries, declining corporate bond yields, and even evidence that the employment situation may be moderating.  Historically, it is also worth pointing out that the deepest recessions are typically followed by the greatest rebounds, which would also bode well for this recovery even though that prospect feels like a long shot. 

There are those, of course, who believe that the significant global stimulus is actually the market’s greatest risk.  While I concur on the concern over inflation, I think it is an issue much farther down the road.  Right now, growth is the most pressing concern, which would be consistent with the argument that today’s weakness reflects the World Bank’s economic forecast.  One also wouldn’t expect to see the commodity complex leading on the way down as it today if the inflation risk was the market’s most pressing concern.

I still think we’ve seen the markets lows and won’t revisit them anytime soon.  In the meantime, volumes are light, consistent with the arrival of summer, the U.S. Open, and a wait and see attitude.