Evergreen Investments Market Update - September 21, 2009


"[W]e continue to believe that consensus projections for corporate profit growth of up to +35% in 2010 are too high. Given the improved cost structure relative to wages, interest, and commodities (as well as the improved mark-tomarket accounting rules for the financial services sector) we raised our profit estimates last month by approximately 10% for 2009 ($55.00) and 2010 ($65.00) . Yet businesses can’t cut costs forever, and at some point revenue growth is a necessity to justify valuations for a market that is already trading at a P/E ratio of 16-17 times our 2010 forecast. For the S&P to climb higher on a sustainable basis, we must see an improvement in longer term fundamentals (sales, housing, credit, employment and corporate profits) to accompany the market’s many technical developments. As we progress through the next year, we believe these fundamental strengths will prove critical to the market’s success as investors will likely be forced to contend with the potential for higher inflation, taxes, and market interest rates."

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