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Investing Specialists

Earnings Jump, the Market Yawns

The market has turned a deaf ear to a plethora of positive earnings announcements.

This week, the market continued to focus on a handful of economic indicators while turning a deaf ear to a plethora of positive earnings announcements. The muted reaction to earnings was predictable, especially when you consider that stocks were already flying 60% higher than their March lows. After better-than-anticipated releases in each of the prior two quarters, Wall Street did a terrific job of "anticipating" a third consecutive quarter of better news. Hence, robust earnings did not necessarily translate into a vigorous market rally.

I remain optimistic about the economic recovery over the next year. In my opinion, equity analysts continue to underestimate the potential improvement in earnings during the year ahead. However, the market and portfolio managers are more bullish, pricing in more serious improvements than analysts. However, I think the market still has plenty of potential upside, especially if job creation or consumer spending start to show some long-awaited signs of life.

Housing Recovery on Hiatus?
This week, real estate announcements dominated the macroeconomic reports with what appeared to be disappointing housing starts and soaring existing home sales. After several months of steady increases, housing prices showed a modest 0.3% decline during September. While I'm not calling for the roof to cave in, I expect housing statistics to be a bit sluggish over the next several months, driven by normal seasonality and the potential expiration of the housing credit. With housing starts holding at 20% or so off the bottom, residential construction will no longer be a drag on employment or GDP. As I see it, retail spending over the next few months will carry considerably more weight than small undulations in the housing numbers--that is, unless the housing market goes into another free-fall, which isn't in my crystal ball.