Dear Subscribers,

The market pendulum took a big swing back towards fear on Thursday. That's because more and more important economic reports are coming in weaker than expected. The latest being the ADP Employment Report and ISM Manufacturing Index. Each was a lot lower than estimates.

Yes, I am one of the guys who has said that "soft" reports like these are not a sign that the economy is going to contract. But certainly each new poor report increases the odds that the economy will have a lower growth rate than previously expected. And as we know from the earnings world, missing expectations is more important than the actual level of growth produced.

When you add it all up, I still expect Muddle Through growth for the US economy in the neighborhood of +2%. Just not the 3%+ growth rate that most other economists were projecting. So as investors adjust their expectations downward, with some even calling for a new recession, then stocks will most likely head lower in the near term. When the smoke clears and the Muddle Through growth scenario emerges, then likely stocks will rebound from oversold conditions and we will make new highs later this year or early next.

Strategy: Expect more pain in near term. Probably 5-10% correction from here. Hold on to your favorite stocks you like for the long haul. Sell off some of your more aggressive/speculative picks which will likely fall the most. Maybe even pick up some short ETF's to profit from downward pressure. Then look for spots down the road to load up on more Zacks #1 Ranked stocks trading at great values.

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Best,

Steve Reitmeister
Executive VP, Zacks Investment Research

Today's Top Stories: Thursday- June 02, 2011

ZACKS RANK BUY STOCKS

• Aggressive Growth - GT Solar International (SOLR) reported fourth quarter results that showed quarterly revenues jumping 39%, to $272 million. Annual revenue was up 65% to $899 million which is a company record. Read More...
   
• Growth & Income - Home Properties, Inc. (HME) first quarter 2011 funds from operations (FFO) were 86 cents per share, beating the Zacks Consensus Estimate of 81 cents. It was a 22% increase over the same quarter in 2010. Read More...
   
• Momentum - (BHI) saw some pretty solid movement in estimates off a good quarter, with the current adding 21 cents to $4.09 while the next-year estimates added 50 cents to $5.29, a bullish 29% growth projection. Read More...
   
• Value - Signet Jewelers Limited (SIG) fiscal 2012 Zacks Consensus Estimate has jumped 23 cents to $3.34 per share since the earnings report. This is earnings growth of 25.5% compared to last year. Read More...
   

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Best,

Steve Reitmeister
Executive VP, Zacks Investment Research

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