Equities

Wednesday's equity performance remains us of that old expression - you just can't keep a good man down. The Dow industrials average lost 11 points on a day when better housing data was expected to show up in response to the government's encouragement to new home buyers. The market didn't get it and it looked like the stocks might deserve to fall.

Yet it wasn't to be: For sure, they did have a good stab at the downside - only to rebound heartily. While there was ewakness in the technology market with an analyst downgrading Blackberry-maker, Research in Motion - not due to weak fundamentals, but due to the potential loss of market share to Verizon. Now in our book, that's not attributable to economic weakness, but simply competitive market forces.

While we feel it was possible that economic weakness could justifiably have driven prices lower, investors cleary think otherwise. The Fed's easy money policy, stretched for longer than the furthest horizon, seems to be playing a larger role even at this stage of the rally.

Earlier in the week leading home improvement retailers Lowe's and Home Depot both comlained about weakness in the housing market crimping their own earnings out outlooks. But they pointed to recovery by the middle of 2010.

So here's the rub: Equity markets tend to discount activity between 6-12 months in advance, which means that to expect a meltdown on account of currently tepid data  seems somewhat short-sighted.

How can we be so sure? The dollar continues to weaken in the face of the data downturn, which means that investors are less worried about the ultimate security of recovery, which continues to bode-ill for the dollar. For the fourth straight session the price of gold made a bid for freedom, reaching close to $1,150 per ounce.

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Tyche Research

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