Indicators are up, but the mood is cloudy, say top investors. Plus, the calendar of upcoming reports.

NUMBERS IMPROVE, BUT NOT CONSUMER ATTITUDES, From David Kelly, Chief Market Strategist, JPMorgan Funds
For most Americans it doesn’t feel like a recovery.  Data due out this week should confirm this dichotomy between the direction of the economy and the public mood.
 
The highlight will be the third-quarter GDP report, due out on Thursday.  This number should come in at between 2.5% and 4.0% - anything outside that range could have a big impact on financial markets.  The durable goods report could show some strength following weakness in August while new home sales data should show the opposite trend.  The savings rate, due out on Friday, should remain flat at close to 3.0%.
 
Among other numbers due out this week, unemployment claims may be the most important.  Right now, the data are pointing to payroll gains starting early next year - not be a moment too soon for a very sour public mood.
 
The earnings season will also continue in full force with another 149 of the S&P500 companies reporting their 3rd quarter numbers.  The general expectation is that earnings will continue to surprise on the upside by as much as the roughly seven-to-one ratio seen so far in the earnings season.  
 
Even with the earnings surprises and positive GDP growth, investors seem to be quoting Shania Twain: “…that don’t impress me much”.  Money is gradually and grudgingly flowing from cash accounts into long-term investments and this may allow the stock market to add to its gains.

RISING ECONOMY, FALLING DOLLAR, From Bob Doll, vice chairman and global chief investment officer of equities at BlackRock
We are about halfway through the third-quarter earnings season, and more than 60% of companies that have reported have posted better-than-expected results. Over the past several months, businesses have been able to maintain strong balance sheets. In addition, corporate profits have increased by a 20% annualized rate for the past three quarters‹a record by a wide margin in a recessionary environment.

In terms of the broader economy, we have seen the Index of Leading Economic Indicators increase for six months in a row, lending credence to our belief that the economy has moved out of a recession. Inventories, which had been drawn down sharply earlier in the year, have recently seen strong reinvestment, suggesting that they will likely act as an important engine of growth going forward. We expect employment levels to start increasing around the turn of the year. Likewise, we expect consumer spending to gradually increase over the coming months.

Given the current interest rate differentials between the United States and other countries (with US rates being lower), the probability that the US Federal Reserve will be among the last central banks to raise rates, and the ongoing exodus from safe-haven assets such as the greenback, we expect the US dollar will continue to fall, which is a subject that needs to be closely monitored.

For the markets, the backdrop remains supportive of better performance from higher-risk assets. Noninflationary economic growth, positive corporate earnings and ample liquidity are all important tailwinds. Investors also continue to move funds out of cash and into higher-risk assets, and while the bulk of these moves has been from cash to bonds, we expect to see increased flows to equities in the months ahead.

DOLLAR DOWN, OIL RISING, From Tom Sowanick, co-president and chief investment officer, OmniVest
Of the 174 U.S. companies that have reported earnings, 146 companies have surprised on the upside. Despite the good news, US equity markets were modestly lower. There were concerns that the weak dollar would prompt investors to redirect asset demand away from the US in favor of non-US assets. In addition, investors were focused on rising oil prices that peaked over $80 per barrel. These factors could negatively affect consumer spending patterns during the upcoming shopping season.

On the economic front, the picture was somewhat mixed. Unemployment rates dipped modestly in Hong Kong and Brazil but initial unemployment claims rose in the US by a surprising 20,000. Offsetting this somewhat weaker employment data was the very strong 1% gain in leading indicators. This suggests that economic conditions continue to improve. This was further bolstered by the very sharp 9.4% increase in existing home sales. Tempering the sales data was the modest decline in housing starts from an expected 610,000 units to only 590,000 units. Clearly, the $8,000 tax credit for first time home buyers has had a large impact upon existing home sales demand. However, this will subside in the months ahead.