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Earnings and the Future

July 21, 2010 – 5:26 pm

Earnings are pouring in for the second quarter and they are showing some impressive growth. That is helping to buoy the market against a backdrop of softening economic growth. Yesterday new home construction fell a little more than expected for June but building permits actually rose 2.1%. That made the report not nearly as depressing as at first blush. The market focused on the drop of construction in the morning then decided that the future prospects looked better and was more important so later in the day stock prices recovered their 100 point deficit on the DOW and then closed up 75 points for the day. Builders, however, are not feeling very good about the future, hoping for more government help but probably not getting it. Existing housing sales will be out tomorrow.

A number of companies reported earnings so far this week and the vast majority are beating their estimates, but more importantly is that many of the companies are stating that their future earnings are going to be better. This appears to suggest that at least the company CEOs do not see a double dip recession. It could also mean they see growth internationally that is robust. I think that is true but at the same time the U.S. is still growing out of its slump as corporations start to spend a little of their huge cash horde to improve efficiencies instead of hiring new employees. Expect high unemployment to stay with us.

It certainly is a time to be cautious, but many stocks are very inexpensive and dividend stocks are looking compelling.

Good Trading
Steve Peasley

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