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Bulls And Bears Battle it Out Over Earnings

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Bulls are quite happy that, in the early stages of earnings season, more companies are beating expectations (a little over 70 percent) than usual (about 60 percent usually beat).

But it's early.

The bulls have argued that the risk to the market is to the UPSIDE, not the DOWNSIDE, and so far they have been right: stocks have popped on small pieces of good news, and generally have not gone down (much) on bad news.

The bull argument is based on this "limited downside" argument:

1) Expectations low

2) Inventories generally lower

3) P/E multiples will expand on stronger revenues, cost cutting

The bears argue that argument 3) is wrong:

1) stocks will sell off in September-October because the market will realize demand is NOT PICKING UP.

2) longer term it is difficult to see new drivers of growth. In the 80's we had interest rates fall from 20 percent to 5 percent; in the 90's we the Internet revolution, and in 2000 we had the real estate boom fueled by the banks. It's very difficult to see what will drive us in the years ahead.

For the moment, the S&P is sitting right near the highest levels since November of last year.

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