December 8, 2009 - Last week I wrote about five things to fear in the stock market, going from the price of gold and what it portends to federal government programs and their consequences. This week, let's look at reasons to be positive about the stock market and what they might signal for 2010.

The FedEx report was very good. While this is only one company, its latest earnings announcement suggests that economic activity is improving. Many investors look at FedEX and other delivery services as a bellwether for the economy, assuming that more deliveries mean more business. Seems like a safe assumption. FedEx raised earnings expectations for its 2010 second quarter from $0.65-$0.95 to a substantially higher $1.10 per diluted share. The consensus estimate among analysts was $0.85 per share. The company attributed the boost in expected earnings to increasing volume in both its international business and its U.S. ground shipping, together with improvements in cost controls. Of course, if the current uptick in deliveries is from companies clearing out inventories, then the stock's recent rally will be short lived. But if the new orders are from increasing demand, the company's higher earnings estimate may be low. Again, it's only one stock, but one that can predict future economic activity fairly well.

Gold is selling off. While last week it hit new highs, this week, it's come well off those, trading at $1150 as this is written. It's too soon to say that gold has peaked, but if the downward trend were to continue, it would suggest that investors feel a little safer about other investing categories, moving their money from gold to stocks, bonds, and real estate. Again, much too soon to call a reverse in the trend for the price of gold, but the fact that it has fallen for several days in a row suggests maybe the highs have been seen.

Oil is coming down. The price of oil, as this is written, is $72.69, well below the recent run to $82 a barrel in October This reflects lower demand as well as speculators moving money out of the oil markets, fearing that demand will stay low and inflation won't be roaring back, as has been assumed for some time. Oil is very volatile so by the time you read this, it may have risen substantially...or gone much lower. Watch oil as another economic indicator. The lower it goes, the more U.S. consumers will have to spend on other items since filling their gas tanks won't take as much money.

General Motors is selling more cars and CUVs. Demand for its Chevy Equinox, a new CUV, the similar GMC Terrain, and the Camaro is so strong that dealers have waiting lists for them, and the company is adding a new shift of workers. While these particular models are made in Canada and new hires are across our border, the fact that this American company is finally producing vehicles that people want is a giant step forward. GM's new North American top executive stated that no more layoffs are planned, that better profits will come from sales and efficiency, not fewer workers. After decades of downsizing, that's welcome news. Look for GM to go public again in 2010, maybe after the Chevy Volt is launched. Toyota is also adding jobs, 850 of them in its San Antonio facility to build more pickups. Slowly, but surely, the auto industry is reviving. More jobs can't be far behind.

The housing market, in sectors, is improving. Every month for the last nine, existing home sales have gone up. But only in the entry level. The homes with lower price points are moving, some with multiple offers, depending on what part of the country they're in. Larger, more expensive homes are still coming down in price and are sitting for longer periods before selling. That's because credit is still tight, and lenders are reluctant to make loans that don't qualify for purchase by Fannie Mae or Freddie Mac. That means homes with large price tags are much harder to finance since lenders can only hold the mortgages, not sell them to other investors. Still, the good news is that the housing market is seeing activity, and when entry level homes sell, the selling families need to move elsewhere and if they decide to buy, often purchase higher value homes as they move up in size and/or quality. The housing market isn't decelerating anymore. When credit opens for larger homes, and that will be in 2010, look for housing stocks to move up.

The banking industry survived. Most of the large banks have paid back TARP money with the exception of Wells, Fargo and Citi which are negotiating with the regulators as to how much capital they need going forward. But Bank of America is out of the program, as are many other borrowers. It was a stop gap measure that helped those troubled institutions through a tough time, one they helped create. Forget the blame game for the moment. The fact that the banking industry survived is a testament to the strength of our financial system. Not all banks are out of trouble, especially with the spectre of large commercial business loans defaulting sometime in the near future. But the worst seems to be over. Bank stocks have rallied notably this year. Investors believe the worst is behind us. Once new regulations are in place and banks have a better handle on what levels of capital they need, look for credit markets to thaw, creating more economic activity. Bank stocks that don't have exposure to business loans or commercial buildings will do well in 2010.

There are several rays of light piercing the economic clouds, but these seemed brighter than most. They're not enough to say the storms have passed, that blue skies are imminent. But they do represent enough positive elements that some optimism is warranted. After all, the stock market, as measured by the Dow Jones Industrial Average, is up more than 60% on the year. More than one investor is already optimistic about the future.

Ted Allrich