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Morning Thoughts


Economic Influence: University of Michigan consumer sentiment gets released at 9:45. Expectations are for a slight improvement to 91.0 vs. prior 89.7. Unlikely to be significant influence in market because we are in transition quarter from the perception the economy is improving to reality of whether it is or not. This number has been in line with moderate economic improvement.

Earnings Influence: MSFT increased revenue guidance which falls in line with a transition quarter for earnings as well. Each day a major company has reported something that would normally be a "key" driver. MSFT's positive today and IBM's negative yesterday reinforces the "good enough" scenario. This refers to earnings being good enough to cause buying on weakness, but not good enough to kick start another leg higher until the market is able to further consolidate the gains.

Market Related Influence: The market is in the corrective process. It is too early to suggest it is over, but the moderate actual fundamental improvement coupled with potential improvement as the economy expands should bring in support as the market pulls back.

The rotation that we have focused on (too soon) manifested itself yesterday as Consumer Staples clearly outperformed the higher beta sectors such as Technology. We expect this to continue for coming weeks as the market digests mixed earnings and economic results, while consolidating the past four month rally.
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