It's Hard To Fight the Tape

Microsoft and Amazon disappointed and we had all the makings of an ugly day but investors seem to be indifferent. As they say, "the tend is your friend". Unfortunately, very few companies have top line growth but aggressive cost cutting has produced much better earnings than forecast. Investor euphoria is back and as long as earnings continue to improve so will stocks.

If the market is right and stocks continue to rise, why are we still concerned? Companies can only cut costs so much before they hurt productivity. As such, investors must be assuming revenues will begin to grow in the not too distant future. Stock prices discount future results and if growth occurs in the first quarter of 2010, then perhaps the bulls are correct.

We still remain concerned that unemployment and a new propensity for consumers to save, will curtail spending and lead to minimal growth, if any. When we focus on the debt piled up by local governments, states, and of course the federal government, we wonder what effect this will have on the economy. Let's not forget the toxic assets on the books of financial institutions will also likely limit the lending engine. If small and middle market companies can't borrow, the heart of this economy is in trouble.

Perhaps China and India will spend enough to pull the United States out of its economic mess but that is a big bet to make. We remain quite cautious as earnings season continues. Disaster seems to have been avoided. Stocks rallied hard to reflect the reduction of fear in the markets but for the rally to continue we need to see corporate revenues show some growth.