Those darned corporate profits
The first few days of the New Year were pretty good for the stock market. Unfortunately, it is the season of pre-announcements for corporate earnings and these have not been favorable. Late last year, equity investors convinced themselves that an economic recovery was in sight in the first half of 2002. That may still me a good prediction. However, the corporate profit outlook is less sanguine. Even Fed chairman Alan Greenspan noted that stock prices were probably overvalued in relation to the corporate profit outlook. Equity prices took a tumble after Greenspan's remarks on Friday, but they were negative even before he took the podium. Our bottom line remains the same - profits will have to turn positive before equity investors can even hope for stock price appreciation this year.

Greenspan remarks lead to even steeper drop in Treasury yields
Economic news was relatively sparse this week but sufficient to keep Treasury yields in check. For the most part, yields headed lower over the course of the week. Then Alan Greenspan spoke. The Greenspan remarks, coming on top of friendly inflation news, played a major role in sparking a rally in the Treasury market on Friday. While Greenspan suggested that the economy might be showing signs of stabilizing, he warned there were still significant risks in the short term. This implied that he wasn't averse to another cut in the federal funds rate target. It was music to the ears of bond investors.