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When reality is incredible

Investors in the US need to decide which numbers to believe. Typically, statistics such as unemployment or capacity utilization are on average revised up or down by 30% within 12 months.

They don't really matter in the short term but do give brokers and the press something to chat about. For corporate profits, however, data is more important as investors need to know if the market is cheap or expensive.

Second-quarter results for US companies have been in line with or better than expectations, although the expectations were based on brokers' estimates that had been revised downwards.

The consensus estimate for the current year is that reported earnings per share for the S&P500 index will be $52, a 13% increase over the previous year.

Even better, operating earnings, adjusted for options and pensions (widely accepted as a more accurate measure as it builds a broader picture), are expected to be $40.80 per share for this year, 14.4% better than 2002.

Thus the 27% rally in the Nasdaq over the four months to early August and the recovery shown by the larger indices is underpinned by a significant turnround in underlying profits growth in corporate America.

Does this mean the bear market is now officially over?

Probably not.

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