As we go into October, the economy looks poised to continue its recovery. It should be remembered that only six months ago, there was a lot of people who believed that the entire worlds on the brink of a collapse comparable to the Great Depression.
Very few still hold that view (some do) but it simply looks like the economy has taken its lumps and has started to regrow. Business cycles are really very predictable in the macro but not so much in the micro. Now, we are moving into another earnings system and I would think we are going to see improvements over last quarter for most companies. Of course, the companies that have adjusted better will do better than those that did not.
The next three months present some challenges to the extent that there are a large number of professional investors who would like to see a market correction so they could put cash to work at lower valuations than current. Of course a correction could happen, but it would require a significant event to trigger it. One significant danger is the CIT situation and it is unclear if a failure to reorganize CIT would be enough. Another possibility might be some sort of terrorist event and I don't think anyone wants that.
Without a major stimulus the most likely outcome over the next three months is for the market to continue its upward trend, although possibly at a slower pace than the quarter that just passed. However, I still believe the earnings that are going to come this month and the forecasts will point strongly to an S&P level of 1150-1200 and that is about a 10% increase over the quarter.
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