The market is starting to focus on 2010, which is just 6 months away.  As usual, the analysts appear WAY too optimistic on earnings.  According to S&P, the S&P 500 company earnings based upon the aggregation of company consensus estimates are expected to rise a very strong 33% to $74.  This would leave them 10% shy of 2007 earnings but 50% above 2008 trough earnings.  Where can I buy some of that stuff?

As I have written before, we won't resume strong economic growth until we see:

• Housing prices stabilize
• The savings rate normalize
• Deleveraging for banks, corporations and state & local governments near completion

Housing prices have stopped accelerating in their decline, but they remain steeped in a downtrend.  I follow Case-Shiller for lack of any better metrics, and they continue to indicate that most large markets are down close to 20% year-over-year.  Until unit demand stabilizes, this won't happen.  It is worthwhile remembering that the affordability has probably never been greater - low interest rates, government incentives and lots of desperate sellers.  With so many years above the mean, I will be shocked if unit growth isn't slow for the next several years:

Folks aren't spending like they used to - funny how unemployment and contracting credit mix:

Spending is declining due to payroll slashing and the remaining workers trying to build savings.  To me, this looks like another couple of years of headwinds for the economy and tells me corporate bonds are probably the place to be relative to stocks.

The final area is deleveraging.  I don't have a pretty chart - sorry.  I think that we have only started this process.  I noted in May that the floodgates had just opened, and we have seen a ton of equity issuance since then.  All this stock for sale is quite the reversal from the massive repurchasing that was going on up until Q3-2008.  This action should help stave off Armageddon, but it will keep prices under a lid.  Look for higher interest rates and equity dilution to rob from EPS growth.

So, the bottom line is that the economy will limp along at best.  I can't yet offer a 2010 stock outlook because I don't know how the rest of the year will shape up.  I tend to discount my original forecast of a new low in the 3rd quarter, but I learned last year and earlier this year not to be surprised to the downside.  That's the risk in a deleveraging economy.  In any event, I don't expect the S&P 500 to break 1000 over the next 18 months.

Disclosure:  No stocks discussed