The stock market has made a dramatic upward surge from the dark days of early March last year when the DJIA traded as low as 6,469. After reaching a recovery high of 10,729 on January 19th, the market has become increasingly choppy and the major averages are trading about 6 percent from their highs.

It is important to note that throughout this bull rally the stock market, in typical fashion, has ignored bad news as it has climbed the proverbial "wall of worry." As usual, the market looks beyond today's headlines and reflects the implications of tens of thousands of decisions being made by consumers, businessmen, investors and government agencies.

The pause in last year's rally may be a period of profit taking as investors wait to see how the incipient economic turnaround develops. If the recovery develops momentum and becomes independent of government stimuli, we would expect the market rally to continue. However, if the market perceives a faltering of the economic recovery due to rising interest rates, a resumption of global credit issues, intractable and rising unemployment, or similar issues, investors can expect a deep test of last year's lows.

Nonetheless, we believe that the market made a major bottom this past March that is unlikely to be breached and, based upon historical experience, a resumption of this cyclical bull rally is probable. Low interest rates, better than anticipated corporate earnings, liquid corporate balance sheets, stabilizing housing and energy prices, a higher savings rate and, perhaps most importantly, low expectations, argue in favor of the economic expansion continuing. We would encourage long-term investors to be buyers of companies with sound balance sheets, good management teams and defendable market positions as stock prices become more attractive.

This commentary is intended for informational purposes only. It is not an offer to buy or sell any security and should not be considered investment advice.