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The Why and Wherefores

October 8, 2009 – 10:19 am

There is and will be little in the way of economic statistics released this week. We had a flood of them last week and they were market movers. Most of that news showed us that we are still in a period of a weak recovery. Investors appeared to expect better numbers than what were reported despite warnings from many sources that the recovery is going to be protracted.

As a result the stock market is showing signs of fatigue. However, do not expect much in the way of weakness. It will be either a normal correction which is in the area of 10% plus or minus a few percentage points or 2 to 5%. Since the March lows there have been many small percentage point corrections that occurred over a few days and only one 7.5% correction that took place over all of June and the first week of July.

Because we are in earnings season, and in a couple weeks we will get a flood of numbers of how well companies did in the third quarter, the depth of any correction will determined by those numbers. In the previous market commentary this week I spoke to the health of the balance sheets for non financial companies and because of that health I believe we are going to see strong earnings numbers and the correction will end. Corporations are running very lean, with no excess inventory, no bloated payroll and any increase in sales is going to fall to the bottom line in the form of profits. Also, because of their very healthy balance sheets they have access to very low cost loans if they need more cash for any reason.

We are going to see further improvement in stock prices that started in March. How far it will go is unpredictable but the odds are on the side of a rising market, not a falling one, into the end of the year.

Good Trading

Steve Peasley

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