Thoughts

I'm hearing from the European and U.S. futures pits that the Federal Reserve is planning to eliminate the 25 basis points it pays on excess reserves shortly.

IBM: Even if the tape rips, the stock might be left behind after its awful service bookings....To me, IBM is now in the penalty box -- even if the tape rips, it might be left behind after its awful service bookings.

The risk is probably no more than $2 to the upside over the near term, and the downside is likely $6 to $8, into the $115 to $120 neighborhood.

Spains' Salgado says all Spanish banks pass the E.U. stress tests. This should be viewed positively on our markets.

It seems to me that one of the basic tenets of the bullish market case for 2010 was that economic growth would be strong enough for us to grow out of our problems (read: fiscal imbalances).

To some degree, that thesis now appears to be in jeopardy.

I don't believe that we are moving into a double-dip, and I do believe that stocks, as they head south, are providing reasonable value.

The key question that market participants must come to grips with, however, is whether growth is slowing at a rate that jeopardizes the consensus expectations for employment growth in the last half of 2010 and for corporate profit growth in 2011.

We are now clearly in a soft patch; its duration and depth is uncertain.

Many who expected more rapid growth in jobs and GDP now seem to be relying on valuation as a justification for higher S&P 500 targets. This might be a slippery slope in light of the lack of economic clarity and the proximity of the emergence of several nontraditional headwinds (e.g., higher marginal tax rates and state and local job layoffs) in early 2011.

I still am of the view that we've seen the lows in the S&P for the year. As I have said in the past, however, there are numerous economic outcomes -- some are less than benign -- so a 2:1 upside/downside is not too exceptional and still may not warrant an above-average commitment to equities, especially in the short term.

Furthermore, in light of the clear evidence of weakening growth and confidence, the burden of proof lies on those that have S&P targets over 1,150 now, which means almost every Wall Street strategist. To make a much higher forecast than 1,150 requires profit estimates to be met ($83 a share for the S&P in 2010 and $90 a share for the S&P in 2011) and a larger narrowing in the gap between the market's P/E and its historical average than might be justified based on those nontraditional headwinds and the lack of economic clarity.

The short-term looks uncertain as we continue to work off the sharp rally and overbought condition of the past few weeks.

In other words, for now, we appear to be in a muddle-valued market, but, if share prices drop any further, value will likely be emerging in the weeks ahead.