GDP growth data comes out this week (Thursday). William Patalon III says confirmation that a recession is underway should help the stock market find a bottom. In the meantime, William says investors should follow two simple rules to survive and prosper in this market. 1) Don’t panic sell. 2) Buy undervalued stocks with long-term potential.

This from Money Morning:

It’s beginning to sound like a broken record.  In a nutshell, we already know that the economic data should be weak. We already know that the earnings reports should be disappointing. And because we already know all this, the information should be built into stock prices. The earnings releases should be soft. That much should already be known – and built into the markets.

Procter & Gamble Co. (NYSE:PG), Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) highlight the list of companies announcing earnings. Remember, crude has plunged more than 50% since halfway through the past quarter and the energy releases will not reflect those moves.

A hectic week on the economic front will be highlighted by a report on third-quarter gross domestic product (GDP), which may reveal negative growth (and renew fears of recession).  By definition, a true recession consists of two consecutive quarters of negative growth. If such a downturn is inevitable, perhaps the stock market will be better off getting that confirmation now, rather than letting the ruinous uncertainty persist.

After all, stocks are considered leading indicators and typically begin rebounding in the midst of a recession (and in advance of any recovery). Finally, the U.S. Federal Reserve meets again to discuss monetary policy and another rate cut to stimulate the economy seems likely (but below 1%?).  That’s quite a switch from just a few weeks ago, when inflation was on the march and the U.S. central bank was trying to plan an interest-rate increase.

Market Matters

Wake me when it’s over. That’s what a lot of investors are thinking these days – at least, the ones that didn’t already just give up in disgust and dump everything they own. Perhaps that “Rip Van Winkle” approach to investing makes practical sense these days (at least, for folks with an investment time horizon of five years or better.

There is a sound way to deal with all this. Take these steps:

• Don’t panic. It’s worth rebalancing your portfolios so that your holdings are consistent with your current long-term objectives and risk tolerances. Fix anything that doesn’t fit. But resist the urge to dump everything and walk away.
• Be smart. While you’re adjusting your holdings, take advantage of potential tax losses. With the end of the year looming, consider dumping any holdings that don’t fit and aren’t likely to recover.
• Don’t obsess. With the investments that you opt to keep, refrain from constantly checking your mutual-fund statements or brokerage reports. Refrain from typing in those ticker symbols over and over again during the day. Quit getting up at 3 a.m. each day to watch CNBC Asia. Give the bailout plans – and the economy itself – the chance to work its way through this mess.
• Look to the future: If there is a stock, or stocks, you believe have really strong prospects – and that are trading at true bargain levels – consider adding to that position at these levels.

Naturally, this isn’t easy to do. But the results will make it worth the effort for you – especially when everyone else continues to panic.

Source: Do Economic Reports and Corporate Profit Statements Point to a Worldwide Recession?