Tuesday, October 30, 2007

The Year End Rally in Waiting

Now that we are well into the current earnings season several earnings trends are matching recent stock performance, most notably the polar ends of the performance scale - Financials and Tech. As the table* to your left shows, however, the overall earnings picture ex Financials is about in line with expectations - low single digit growth.

Investment Strategy Implications

Once tomorrow's Fed rate decision is behind us, the year end price action for equities will depend in part on the answers to three key questions:

• Will the US economy experience a soft or hard landing?
• Has the global economy decoupled from the US to a sufficient degree that will enable global growth to remain robust?
• How far along are we in the black hole of credit derivatives discovery process?

Notwithstanding all the issues that threaten to derail the aging bull, with liquidity so abundant, corporate and nation state finances in excellent shape, valuation levels reasonable, and technicals in compliance, should all three questions be answered in the affirmative the odds for a decent if not strong end of year rally are high.

*Click image to enlarge.
Source: Wall Street Journal

No comments: