THE BIPOLAR MARKET

The bulls are frustrated, the bears are frustrated. The S&P is up 100 pts to 1120 since July 1, after falling 100 pts from Jun 21 - Jul 1. These are big moves 8-9% in weeks. Why. Well we had terrible economic data towards the end of June that gave us 9 out of 10 down days, everything from bad payroll, weaker ISM, lousy retail sales, etc. Then from the middle of July on we had terrific earnings news. They beat their numbers bottom and top and raised full year estimates while giving optimistic guidance.

This points out a great divergence. The S&P 500 which is the stock market to most of us, no longer correlates to the US economy, at least not like it used to. We've got almost 10% unemployment, two months of declining retail sales, new home sales at the second worst level since 1963, and companies are reporting earnings like its early 2008, and expected to do $92 in 2011 for a new record.

Those bears who correctly predicted this wave of dismal economic statistics, were completely blown out by this 10% rally. S&P 500 companies get almost 50% of their revenues internationally. They can cut to the bone in the US and ride the wave of demand in Asia, Europe and Latin America, which is exactly what they have been doing. Sure, if we fall off the table like we did in 2008, everything will go down, but look how well they are doing when we are just bouncing along the bottom. Forecasting the US economy is no longer forecasting the S&P500, except in the very long run. Yes our weakness should manifest itself in China and Europe and loop back to weakness for our multinationals, but that is taking some time.