Market Commentary

Stocks advanced handsomely as earnings and forward
July 23, 2010

Stocks advanced handsomely as earnings and forward looking statements continue to exceed views. Stronger economic data at home and in Europe was a further catalyst.  Wow!  Talk about intense mood swings.  This daily change in sentiment is mind numbing.

An obvious conclusion to make is there little conviction fearing the rehash of the cathartic events of fall 2008/winter 2009 perhaps suffering from a form of  Post Traumatic Shock Syndrome  (PTSD).   In fact a psychologist friend suggested the symptoms are similar, symptoms that will only dissipate in a calm environment.

We are living in an environment where broad based conclusions are instantly made following the release of one data point or event.  Eventually the noise will be delineated and the fundamentals will become obvious.

Speaking of fundamentals in my view the underlying environment is improving each day.  As evident by bank earnings reports, credit quality is improving across the banking system thus permitting smaller additions to the loan loss reserves.   This decline in non performers increases confidence and flexibility thus creating an environment to allow greater lending.  Moreover lower provisions turbo charges earnings thus boosting bank equity bases and access to markets for more capital.

As noted many times a vibrant economy requires a healthy banking system.  I think the banking system is almost there.

Last night the foreign markets were up.  London was down 0.18%, Paris up 0.53%  and Frankfurt up 0.71%.  Japan was up 2.28% and Hang Sang up 1.10%.

The Dow should open moderately higher on earnings and economic optimism in the US and in Europe.  To date 85% of S & P 500 companies that have posted results have exceeded expectations.  The 10-year is off 8/32 to yield 2.97%.