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When and Why

October 17, 2011 – 5:05 pm

We will have a blizzard of data this week both on the economy and from corporate earnings. So far we have seen a rebound, weak though it may be, in economic numbers showing some strength coming out of the struggle during the summer. This week with most of the data for September the picture will clarify either supporting an economy in recovery or not. The odds are a recovery scenario.

Earnings reported last week were better than expected with a few disappointments. The majority of the S&P 500 will be reporting over the next three weeks so that too will lead us to a clearer picture.

We know that our economy will be growing and we also know that corporate earnings will do well while at the same time corporate balance sheets continue to be the healthiest they have ever been.

So why is the stock market struggling? Yes, last week gave us a nice spike up but that is likely to slow and knowing the vagaries of the market it is extremely likely that some of those gains will be given back before another run up. But the day to day movement of the market is not the point. Why is the market selling for such low multiples and why are investors running from low prices and a high yielding stock market to overpriced and low yielding treasuries?

Actually, it is an easy question, fear drives everyone. A better question would be when will fear subside enough to let the market revert to its normal value metrics? Besides the clarification of our economy and corporate earnings we need clarification from Europe and China. Then we will have a strong sustainable rally.

Good Trading
Steve Peasley

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