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The odds that the U.S. stock market will win its current bet look daunting. Especially with stocks currently threatening a good-sized correction.

Investors are betting that the U.S. economy will produce a big enough increase in earnings to keep stock prices headed higher and at the same time show enough signs of weakness to prevent the U.S. Federal Reserve from raising interest rates in 2010.

Seems like trying to get a camel through the eye of a needle, no?

Well, I think the odds are better than you’d think—for the first half of 2010. Then get progressively worse until by 2011 the chances that the stock market will get the precise balance it needs are almost nil. (This article is an update of my how to worry/when to worry post

The key to my relatively optimistic view for the first half of 2010? Timing.

For example, take a look at quarter by quarter earnings projections for the stocks in the Standard & Poor’s 500.

Operating earnings collapsed at the end of 2008. For the fourth quarter the 500 companies in the index actually showed a total operating loss of 9 cents a share. A year earlier, in the fourth quarter of 2007, these companies showed total operating earnings of $15.22. I think that qualifies as a collapse.

For the fourth quarter of 2009, the one that companies are reporting now, Wall Street analysts are forecasting total operating earnings for the S&P of $16.08.

A loss of 9 cents a share to $16.08 in operating earnings. That’s a huge swing and explains in part why stocks have rallied so strongly since March 2009.

But watch what happens as 2010 moves along.

In the first quarter projections call for operating earnings of $17.12, up from $10.11 in the first quarter of 2009. That’s 69% earnings growth year to year.

Second quarter 2010 operating earnings is projected at $18.59, up from $13.01 in the second quarter of 2009. That’s 43% earnings growth year to year.

Third quarter 2010 earnings is projected at $19.92, up from $15.78 in the third quarter of 2009. That’s 26% earnings growth year to year.

See the pattern here? As stocks move further and further away from the economic bottom in earnings at the end of 2008, year to year earnings growth slows because the year earlier quarter wasn’t quite so horrible.

That makes spectacular earnings growth pretty easy to come by in the first half of 2010 and makes earnings growth in the second half of the year look increasingly ordinary. (Especially if stocks have kept moving up in price quarter by quarter.)

So the odds that stocks will deliver the earnings needed to justify higher share prices look pretty good in the first half of 2010 and then decline as the second half progresses.

Of course, all those numbers I cited about earnings on the S&P 500 stocks are just projections. Actual earnings could be right on the mark or horribly below projections.

But here again I think timing comes to the aid of investors.

The big danger to those earnings projections is the real economy—actual earnings could fall far below projections if the economy grows more slowly than the 3% most economists are expecting for 2010. With the official unemployment rate at 10%–and the full unemployment rate north of 17%–and forecast to remain stubbornly high into 2011, projections of 3% economic growth seem ludicrously high.

But they’re not—once you understand exactly how high unemployment actually increases corporate profits in the beginning stages of an economic recovery.

By this point in the recession and recovery, I think every investor knows that the unemployment rate is a lagging indicator. Long after the economy has actually started to grow again after a recession, unemployment remains stubbornly high. Employers are reluctant to do much hiring until they are convinced that the upturn in the economy is real. And then it takes time to find job candidates, interview, process, and train them.

The rule of thumb for recessions before the 1990-91 recession was that the peak in unemployment came about one quarter after the turn in the economy. By that rule with the U.S. economy showing growth in the third quarter of 2009, the unemployment rate should have peaked in the fourth quarter or at worst will peak in the first quarter.

But the most recent two recessions haven’t followed that rule. In the 1990-91 and 2001 recessions the peak in unemployment followed the turn in the economy by a year or more. If this recession follows the pattern of those two most recent recessions, we’re looking at rising unemployment—or at best no reduction in unemployment—until 2011.

That would be enough, you’d think, to put a huge dent in those earnings numbers. Companies can’t generate profits like that if 17% of the work force is either officially unemployed, so discouraged that they’ve stopped looking for work or working a part-time job when what they want is full-time work.

You’d think. But you’d be wrong. Initially at least high unemployment that stays high as an economic recovery begins is good for corporate profits. That’s because when companies put off hiring even as an economic recovery brings in more business, employers wind up doing more work with the same shrunken staffs.

You can see the result in the productivity numbers from the Bureau of Labor Statistics. Productivity climbed at a very low 1.8% annual rate in 2008 and was even actually negative in the first and third quarters of the year. After a modest 0.3% gain in productivity in the first quarter of 2009, productivity soared in the second quarter, climbing 6.9%, and moved even higher in the third quarter, rising at an 8.1% rate.

With hourly earnings up just 0.2% in December and November and just 0.3% in October, most of the gains from that increase in productivity aren’t going to workers. Instead they’re falling straight to the corporate bottom line.

That increase in corporate profits is one reason that so many capital goods and technology companies are reporting an increase in sales and orders from their corporate customers in the current earnings season.

You can’t build a long-term recovery if workers don’t eventually get to share in the productivity gains and if companies don’t hire. With some 70% of the U.S. economy dependent on consumer spending, in the long run any sustainable recovery has to include rising employment and rising incomes.

In other words in the first half of 2010 we could get exactly the earnings growth Wall Street now projects, even if unemployment remains stubbornly high. But in the second half of 2010 and in 2011 it’s hard to see how a sustainable recovery and continued growth in corporate profits can meet expectations without higher employment and income growth.

This takes us to the big debate right now over the long-term sustainable growth rate for the U.S. economy.

Last May the big guns at Pimco (Pacific Investment Management Co)—Bill Gross and Mohamed El-Erian—said that coming out of the recession the economy would grow more sluggishly than in the usual recovery. Long-term economic growth would average just 2% a year.

That call is by no means supported by the consensus of economists. According to a Bloomberg survey of 46 economists, growth in the recovery will match the average over the last 20 years, according to a Bloomberg survey of 46 economists. The median forecast in the study says the economy will grow by 2.5% a year.

It matters which view is right.

 At 2.5% the U.S. economy would be $400 billion bigger in five years than if it grew at just 2%.

If the economy is set to grow by 2.5%, stocks will do fairly well and the puny yields of bonds and dividend paying stocks look even smaller. It would pay to reverse portfolio decisions that have moved big money out of stocks and into bonds.

The problem is that however you grade the arguments—and personally I find the Pimco position convincing—we won’t know the answer until we get much closer to the 2011 to 2013 time period that economists are arguing about.

Although I suspect that as we get closer to the beginning of that period, fears of a slowdown in growth will increase.

Just another reason to think that the first half of 2010 will be much clearer sailing for investors than the second half and 2011. Add in the probability of a Federal Reserve interest rate increase in late 2010, or more likely in 2011 and some action by China to reduce runaway economic growth (Looking forward to a replay or two of the current volatility, are you?) and late 2010 and early 2011 will give investors plenty to think—and worry– about.