We expect corporations to maintain high profit margins and strong cash flows. However we recognize that earnings growth will likely decelerate to more sustainable levels. Historically, when earnings growth is positive but the growth rate is decelerating stocks have continued to rise, albeit at a single-digit growth rate (see Weekly Chart). We described this phase of the economic and market cycle from 2004 to 2006 as 'boring…but up,' and we would love a repeat. However with the outlook clouded by recessions in Europe, China's transition to slower growth and a looming 'fiscal cliff' in the US, we expect more volatility but an eventual upside breakout for the S&P 500.

David Fuller's view This is very similar to the Fullermoney outlook and I am at least momentarily less concerned about the risk of an oil price spike. US Gasoline futures have seen a loss of momentum near their 2008 and 2011 peaks. They are also somewhat overextended relative to the 200-day MA so there is further scope for some sideways to lower ranging. Nevertheless, there is arguably more underlying trading capable of cushioning a correction this time and we have yet to see the sort of downward dynamics that signal a bigger setback.