BOUNCE

As I mentioned a couple of days ago, good earnings from CAT and HON in the dow was just what the doctor ordered and we had a triple digit increase in the dow. The market had a great rally to start the year and the bulls don't want to give up on it. Who can blame them. Every bit of good news is seized on with fervor. We will now pretty soon how this earnings season has come in, but of the 20 dow stocks that have reported, the bad still outnumber the good. Only 4 could characterized as unequivocally good. Not to say that is definitive, because some like AA and PFE are higher than when they reported because of favorable news flow, like higher aluminum prices and new drug announcements. The overall tone however is that the dow will be a lagger and revenue growth is hard to come by.

This morning, the lower than expected GDP report at 1.1% vs 2.8% expected is so far not doing much damage. To my mind, however, this is one more factor starting to deteriorate. Ten year yields are creeping up, the Fed is going to raise rates again next week, housing is slowing, the auto industry is in trouble and oil is getting close to $70 dollars again. Nothing is more lethal to the economy and the market than the combination of higher rates and energy. We have just to look back to Mar of 2000 to see what such a combination did.