The Bulls stampeded on Wall Street yesterday, driving stock prices sharply higher on news of the Commerce Department's GDP report of 3.5% annual growth. Hurray, the recession is over...or is it?

The Bulls had a right to celebrate yesterday's GDP report. An expanding economy means jobs, higher earnings, a sustainable bull market and, indeed, a return to happier days. But some analysts say the GDP report was as phony as a three dollar bill. Be that as it may. The things I watch are earnings, inflation and interest rates. If the economy is on the road to recovery, it will be reflected by these factors. The Investment Climate shown below shows that the Trend Indicators for inflation and interest rates are favorable. The problem is earnings. What is going on with earnings?

Thomson Reuters, a leading data provider, says that with half the companies having reported, an astounding 81% have exceeded expectations. So what? Any CFO can low-ball a forecast; then beat it hands down. Let's turn to our trusty VectorVest database to see what we can learn. Let's open the S&P 500 WatchList and look at the average EPS for all the stocks in the S&P 500. As of yesterday, it was $2.26 per share. When I go back exactly one year, I see that it was $3.27 per share. Two years ago, very close to the S&P 500's all-time high, it was $3.70 per share. So the current EPS is still 39% lower than it was two years ago. That's not good.

When I look at an All-Weekly, Standard Graph of the S&P 500 average data, I can see that EPS literally fell off a cliff in September 2008 and hit bottom at $1.70 per share in March 2009. But it has been climbing higher over the last few months and that's good. However, it looks like it will take years to reach its former high. Indeed it will, but that's not the issue. The issue is the trend. This information is shown each week in the Investment Climate section of these Views. It is also shown graphically in the Market Climate Graph. As long as the S&P 500 EPS continues to rise, I am content to believe that we are on The Road to Recovery.

BEST PERFORMING STRATEGIES.
If you have been reading the Daily Views or watching the Daily Color Guard Report, you may have noticed how the Best Performing Strategies have shifted from predominately Bullish in early October to a mix of Bullish and Bearish in mid-October to predominately Bearish in late October. On Wednesday, October 21st, the five Best Performing Strategies were all Bearish. Which Strategy has performed the best since then? How well could you have done had you gone short with any of those Strategies? Mr. Glenn Tompkins, Manager of Internal Training, has all the answers. So join Mr. Tompkins at the VectorVest University to see this week's "Strategy of the Week" presentation: "Best Performing Strategies."