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180-Degree Change in Expectations – No Room for Surprises

With Worries about Europe and our economy off to the side temporarily, the focus is now on Q3 earnings.  While generally good, Q3 earnings growth for the S&P 500 is projected at a plus 14%

With Worries about Europe and our economy off to the side temporarily, the focus is now on Q3 earnings.  While generally good, Q3 earnings growth for the S&P 500 is projected at a plus 14% vs. 19% in Q2 and 20% in Q1. Presently the consensus for Q4 is 12%, and 9% for Q1 of  2012.

The Street now EXPECTS the U.S. to avoid a recession and for Europe to successfully address its banking and sovereign debt problems, when 10 days ago it had grave doubts either could happen.

   The DJIA is 864 points (8.1%) higher as a result.

The change of heart came when recent economic reports failed to show the kind of weakness that accompanies the early stages of a recession, as well as an announcement by Germany’s Merkel and France’s Sarkozy that a plan to address Europe’s problems would be introduced on November 3.

Be wary of expectations, an abrupt change ( or concern for change) in an outlook can have a nasty impact.

I am still uneasy about the low volume that has accompanied this advance. Granted, the ease with which stocks moved up suggests an absence of sellers, however higher prices may attract them, triggering a correction.

       It would be normal and provide confirmation for the legitimacy of the surge that started last week. Support for the DJIA is 11,200, for the S&P 500: 1150.

      Jobless Claims through  October 8 were down 1,000.  While a greater decline is desirable, it is positive in that it doesn’t suggest a slumping economy.

The SuperCommittee has been lost in the shuffle, upstaged by  international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.

12-member SuperCommittee timeline:*

Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.

Oct.: 14: Deadline for House and Senate  Standing Committees to submit recommendations.

Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction  goal of $1.5 trillion Dec. 2: Deadline for committee to submit report and legislative language to President Obama and


Dec. 23: Deadline for both houses to vote on committee bill.

Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if

the committee’s legislation has not been enacted.

Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.

Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche

($1.2 – $1.5 trillion) of debt limit increase.

Fall/Winter 2012: When additional $2.1 – $2.4 trillion of borrowing authority from this law runs out.

Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary

to meet spending cuts required by the “trigger.”

Recent blog headlines:

Sept. 22,  DJIA: 11,124  “Opportunity to Follow Wrenching Probe for a Bottom – Dow 9,680 ?”

Sept. 23,  DJIA: 10,733  “Don’t Buy a Bounce Fueled By Reassuring Statements”

Sept. 26,  DJIA: 10,771  “Stock Market Bottom Here – Premature”

Sept. 27, DJIA: 11,043   “Market Bottom Needs More Time”

Sept. 28, DJIA: 11,180  “Getting Close to a Breakout (UP or Down) From Two-Month Trading Range”

Sept. 29, DJIA: 11,010,  “Approaching Consolidation Crossroads – Up ? or Down ?”

Sept. 30, DJIA: 11,153,  “Bulls Need a Big Day, or Else”

Oct. 3,    DJIA: 10,913,  “Almost Ugly Enough for a Buying Juncture”

Oct. 4,    DJIA:  10,654, “ Marching to Europe’s Drumbeat – October Opportunity Looming”

Oct. 5,    DJIA:  10,808, “ News Whipsaw Becoming Problem for Bottom Watchers”

Oct. 6,    DJIA: 10,939,  “Rally Entering Area of Resistance.  Euro-Rally a Fake out”

Oct. 7,    DJIA 10,939 ,  “ Traders’ Sell – Investors – Defer Purchase”

Oct. 10,  DJIA: 11,103,  “Euro-Fog Lifting – Street Looks to Q3 Earnings”

Oct. 11,  DJIA: 11,433,  “Easy Does It – Market Needs BIG Buying to Advance From Here”

Oct. 12, DJIA:  11,416,  “Looking Beyond This Mess”


George  Brooks

*Stock Trader’s Almanac –

**National Journal


The writer of Brooksie’s Daily Stock Market blog, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

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