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Corporate Strength, Economic Weakness

September 17, 2010 – 5:14 pm

After hours yesterday Oracle, Rim and Texas Instruments reported very good news which not only will boost stock prices somewhat this morning but demonstrates a deeper story. Oracle and Rim released earnings and both were sharply higher than the experts were expecting, whereas Texas Instruments announced a huge multi billion dollar buy back program adding to their already existing billion and half dollar buy back plan.

The surprise in earnings is a continuation of surprising growth of sales and earnings across most corporations despite a struggling U.S. economy. The story is the same. Corporations cut their costs a couple years ago because of the recession and have not rehired, keeping those costs down. Meanwhile the economy is growing, albeit slowly and that slow growth is dropping earnings to the bottom line for most companies. Any uptick in growth results in an outsized profit jump. Add to that the much stronger growth in foreign economies, other than Europe, and the fact that over 50% of earnings for the S&P 500 companies come from outside the U.S. and you can begin to understand why companies are doing so well. With all that money we are seeing buy back programs, increases in dividends and a strong increase in merger and acquisition activity.

However, stock prices are not moving up very much. They have been stuck in a range for months but as earnings keep increasing they will break out at some point.

Good Trading
Steve Peasley

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