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Market Insights

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For the week of October 5th

10/05/2009

This week, there will be a modest shift away from Global and Domestic Economic reports toward the beginning of the Q3 earnings season.

Reflecting back upon the past few weeks, encouraging economic data has succumbed in the past ten days to discouraging data points. The result is a market on the defensive heading into this week.

The beginning of Q3 earnings brings much higher expectations for corporate earnings. No longer will effective management of the bottom line be enough to advance equity valuations. The spotlight will now be on the top line and the market will demand sales growth.

The good news is that the overall sentiment for top line sales growth is tepid at best. A litany of potential surprises could reverse the negative market momentum of the past ten days. Keep in mind - the market will need to navigate its way completely through the Q3 release period over the next few weeks before establishing the next well - defined trend.

Monday October

ISM Non-Manufacturing Composite 10:00 am

Analysts surveyed are expecting the September number to rise north of 50 for the 1st time since September 2008. 50 is the line for expansion or contraction - below 50 signals contraction, above 50 expansion. "Non-Manufacturing" focuses on the service component of domestic business activity. The services component of business activity has lagged the industrial component of business activity this year. There is no evidence to suggest that dynamic will change.

Tuesday October 6

The earnings releases for Pepsi and Yum Brands will provide valuable insight toward consumer trends both domestically and internationally.

Wednesday October 7

DOE Oil Inventory Report 10:30 am

I view this as one of the more critical data points this week. Inventories of reformulated gasoline, a consumer fuel, have been "drawing down" recently. That is fundamentally supportive for the entire energy complex. Currently, gasoline inventories are driving the direction of oil prices.

Consumer Credit 3:00 pm

I would expect a seventh consecutive drop in borrowing by Americans. Last month, a 10% decline of $21.6 billion brought the annual rate down to $2.5 trillion. This figure is released by the Federal Reserve. The implications of further declines in consumer credit as banks continue tightening lending standards and repairing their own balance sheets. That will keep consumers in retrenchment mode and continue the absence of any consumer spending contribution.

Earnings releases for Family Dollar, Monsanto, Alcoa, and Costco. Alcoa will be a "main street' headline grabber. Monsanto has had a horrific year, relative to the S&P 500. Further weakness will contribute to the recent overall negative market sentiment. Family Dollar and Costco bring us further insight toward consumer spending trends.

Thursday October 8

Whole Sale Inventories 10:00 am

Expect inventories at U.S. wholesalers to fall for a record 12th month. This is a positive. Low inventories are needed to drive some growth in the next quarter. Inventory restocking is a necessary element for any potential recovery.

Earnings release for Marriott. Clearly, the hotel and lodging sector enjoys the benefit of extremely low expectations. That could spark a nice recovery for the sector if some top line growth emerges.

Friday October 9

Smell the roses and enjoy some baseball!


Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.