Events Last Week Were An Excuse To Take Some Profits

As typically is the case, the event(s) that precipitates a market correction is typically unforeseen. Last week's 1,000 point plunge in the Dow at mid week was no exception. Not wanting to make light of the cause for the correction, the S&P 500 Index ($INX) seems to have bounced off its 200 day moving average this past Friday.

From a fundamental perspective, bottom up 2010 and 2011 earnings estimates for the S&P 500 Index are expected to total $81.06 and 94.87, respectively. The $94 estimate would surpass the $92 earnings achieved near the market's peak in late 2007. At that point in time the S&P 500 Index traded in the 1,500 area. Is it possible or better yet probable that the market gets back to this level in 2011?

Through the end of April, the only S&P sector trading near its October 2007 high is the staples sector. As the below table indicates, most sectors are still below their highs by double digit percentages. The S&P 500 Index itself remains over 24% below its October 2007 high.

As I noted in October of last year, anecdotal evidence of a pickup in trucking activity seemed evident during an out of town trip. An article from a week or so ago, Riding the rails: Road map to recovery, also cited a pick up in trucking and rail activity as a sign of improved economic activity. Although first quarter GDP of 3.2% came in lower than the 5.6% reported for the fourth quarter of 2009, it was growth nonetheless. From a positive perspective the growth came from the consumer and business (excluding inventory restocking). Longer term, a lack of saving by the consumer is a problem.

In the recent edition of Standard & Poor's The Outlook, they note that, "no bull market since 1949 has lasted fewer than 24 months." So can this bull market run through March of 2011?

Disclosure: Long NSC