Because of this, with about a third of the earnings season behind us, a combination of results in the door and expectations for the remaining firms suggests a 6.0% year-over-year decline in total earnings and just a 0.3% rise in total revenues for the S&P500 companies.  Both of these numbers look better on a ‘per-share’ basis, reflecting stock buybacks and both numbers should improve as the earnings season continues.  This week, with 156 S&P500 companies due to report, should clarify the third-quarter earnings picture.

Finally, this week will see the third and final Presidential debate and a two-day Federal Reserve meeting.  The Presidential debate is supposed to be on foreign policy although both candidates may also try to make domestic points.  The race remains exceedingly tight so any stumbles or moments of brilliance could prove decisive in an election that clearly has important implications for both the economy and financial markets.  Much less exciting will be the Federal Reserve’s two-day meeting as the Fed will not want to make any changes in policy so close to the election.

Many investors will remain in a wait-and-see mode – waiting to see what happens with the election, whether the economy can pick up some steam in the fourth quarter, whether European politicians will ever make any progress on restarting peripheral economies, whether Iran can be forced to abandon its nuclear ambitions without the use of force and whether China’s economy is indeed beginning to turn the corner.

However, while ‘waiting to see’ seems logical, it only makes sense if you are appropriately positioned in the first place. The next few months should see less uncertainty and, hopefully some of these issues resolved in a positive manner.  If this occurs then ‘risk assets’ could benefit at the expense of cash and Treasuries and given relative pricing it still makes sense to be over-weight the former and underweight the latter.”

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