Why October is likely to be a strong month

We enter the historically best month for the stock markets looking at an
increasingly bullish scenario. Yes, the economy is slowing, but business
investment and activity appears to be holding strong. Yes, there is inflation,
but more and more voices are suggesting that the worst of the inflationary
pressures are over. Yes, there is a rapidly declining housing market, but with
inflationary pressures moderating, interest rates on the long end are falling.
This could revive somewhat the refinancing market and thus help fuel
consumption. Lower interest rates could also help the housing market find if not
a bottom than a much softer landing.

The other major trend which continues to weigh heavily on my mind is the issue
as to whether are not we are in the midst of a historically significant
decoupling of the U.S. economy from the U.S. stock market. Historically, the
stock and bond markets have both been reasonably reliable leading indicators of
economic activity. To the extent, our manufacturing base has migrated abroad and
U.S. corporations are becoming increasingly global entities, what may matter
more is the state of global economic conditions. For example, even if the U.S.
economy slows, if Asia and India and Latin America keep cranking, there’s plenty
of earnings to be had for U.S. companies — and therefore a possibility that
their stock price performance may not reflect U.S. economic conditions.

All of this said, while I enter October in a bullish frame of mind, I also am
wary of a possible correction in the months ahead that may well be the major one
we have thus far avoided

This Week’s Market Movers

There’s mucho data this week and therefore a lot of candidates for to top market
movers. The ISM index on Monday and factory orders on Wednesday will give us a
nice read on the supply side of the economy. Auto sales will be of interest on
the demand side. But the big market mover is likely to be the monthly jobs
report. Lower than expected job creation will be perversely bullish as it will
reinforce the declining inflation scenario and conversely. Place your bets.

Portfolio Shorts and Longs