Two things….

thing 1:  This morning we got the 2nd read on 2Q GDP from the BEA.  I expected it to drop from +1.3% to +1.0% — and that’s what it did.  The US economy continues to slide towards recession.  As you know, there will be one more estimate on 2Q GDP at the end of next month. I doubt it will change much or move markets much.  The damage has already been done.

Looking out to the BEA 1st estimate of 3Q GDP at the end of October, I suspect the first read might show a slight uptick in GDP since July saw a large rebound in auto & airplane sales. Many forecasters will lower their GDP expectations just beforehand to the 0% area. A +1.5 to 2.0% BEA initial read could happen and spark a decent mini rally in stocks. This will make it hard for the Fed to launch any monetary candy in November.  But any mini rally that happens will be crushed by the end of the year as the data for August & September begin to be baked into the BEA 2nd and 3rd estimates of 3Q GDP. I’m sticking with the forecast I made in December 2010 of 0% GDP growth in 3Q and a negative GDP number for 4Q.

thing 2:  More importantly, Ben Bernanke came out of his Jackson Hole and saw his shadow. So there will be six more weeks of nuclear winter in the stock market (at least!).  Ben decided against announcing QE3. This matches my forecast on QE3 for the past couple months.  (Maybe the folks at the Fed read my Wall St Journal rant a month ago where I wrote the stock market would drop 60%, that QE was not helping, and that there should not be a QE3.)

But he did leave a small crumb of hope for more monetary candy to be announced in the September Fed FOMC meeting. Many equity fund managers will cling to that prospect. The extent of this hope is what will prevent a collapse in stock markets in the near term.

Ben’s press release on Friday morning was so widely followed, it was going to act like massive risk-on / risk-off switch. Either the Fed would overtly signal its intent to continue launching a fleet of QEs and thereby drive the stock market into a frenzied speculative risk-on rally again (but completely fail to solve any underlying economic issues). Or it would be conservative and responsible, and thereby tip its hand that it may have already over-stepped its bounds — and not launch QE3.

So, we have the risk-off side of the switch being hit. Thank goodness.

There may be some head-fake moves today and over the next 2-3 days (what do you expect from a stock market where most of the trading activity is from flash traders that rent stocks for milliseconds.)  But soon enough, global stock markets are likely going to accelerate their losses as we go through September.  Now that vacation season is over, volumes will pick up, adding to the speed of the drop.