Top Five Reasons to Trust This Rally

By Elliot Turner

Everywhere I turn, people tell me that this rally is not to be trusted. We were hearing that from the first day of September as the market broke its August downtrend, and again Tuesday after the market broke the “important” 1130 level on the S&P. Complaints range from lack of volume, to over-bullishness which I just don’t get. Here are my five most important reasons to legitimately trust this rally:

1. In the long run, the market follows the trajectory of earnings

Whether one believes the market to be efficient or not is irrelevant. Take any subset of time and the above statement is predominantly true. In the latest earnings season, reports were outstanding; however, market prices declined due to concerns out of Europe and of a double-dip. The earnings run-up that carried us through July faded in August, but once again with earnings looming the market is on the rise.

Emerging markets have exhibited particularly impressive results while developed economies took a beating during the Spring and Summer trading sessions. Many US-based companies have significant exposure to earnings growth abroad, and this has provided an outstanding boost to earnings while the US has experienced a speed bump in the road to recovery. This source of earnings growth will continue into the foreseeable future. (more)