Skeptics continue to question how long the current U.S. stock market rally can continue, and keep pointing to the need for a major pullback after major U.S. indexes climbed 50% from March lows.

We acknowledge that a pullback would not be surprising and a repeat of the previous six months' performance is highly unlikely. However, we still remain relatively optimistic on the market's prospects. In fact, we're in the middle of a seasonal period that has usually been strong for the market, with both November and December typically posting higher-than-average gains.

Indeed, this quarter more than 80% of companies in the S&P 500 have beaten estimates as of October 23, according to Bespoke Investment Group (B.I.G.).

The bar for third-quarter earnings reports was set a bit higher than for the previous two quarters, as investors are now looking for revenue growth, as opposed to just cost-cutting. As a result, we've seen more muted reaction to these "earnings above estimates”. Revenues have also been a bit more mixed, resulting in a relatively flat market performance through the reporting period. However, commentary coming from the majority of reporting companies has been better than in previous quarters.

“Many executives believe the worst is behind us and that they're seeing signs, although tenuous in some cases, of improvement in 2010. As we've been saying, we believe this confirms what much of the economic data has been showing—that the recovery seems to be gaining some steam,” says Liz Ann Sonders, Chief Investment Strategist, Charles Schwab.

We continue to monitor the government’s “exit strategy”, and we are starting to see some retreat from the extraordinary monetary and fiscal stimulus measures put in place at the height of the financial crisis. How the market reacts to these modest pullbacks will be key to the future viability of the recovery.

The Fed faces the delicate task of removing its unprecedented stimulus in a way that forestalls any potential inflationary threat, while not doing so in a way that would crush the economic recovery.

The major question continuing to surround the central bank is when it is going to raise interest rates.

We believe that the Fed will indeed raise rates sooner than many believe—perhaps as soon as the first quarter of 2010—but want to remind investors concerned about such an action that rates are currently at emergency levels of near 0%. Worse news would be if the economy justified 0% interest rates too far into the future. It's difficult to argue that we're still in a financial emergency, and even a series of moves that left rates around 2% would still represent an extremely low level when viewed in a historical context.