Apparently, gravity does not apply to the stock markets this year. Despite September historically being a bad month to invest, the stock markets have generally held their own and extended a rally which started in March despite ballooning government deficits, rising unemployment and an unstable real estate market in many parts of the world. This has lead many to pose the question whether this stock market rally is for real?

For the short term, even the bears think there may be still some life in the market. The larger question is the medium to long term. Simply put, it is too premature to declare victory and that the “normal” times are back (if you believe over-leveraged households and large trade deficits are normal) based on the fact that the economy has been essentially kept afloat with taxpayer money.

The key inflection point will be when  governments begin to retreat from their collective massive spending. If the private sector does not take up the slack or the consumer is still de-leveraging then the economy could head south and the 2009 stock market rally has been a large exercise in the use of public funds to prop up private enterprise.

However, beyond the leading indicators, charts and predictions, here is an ominous sign from the street. The entrepreneurial grape vine has began to tell tales of small to medium sized businesses being “requested” by their large corporate clients to pay “membership fees” to continue to have the privilege of selling for or to these corporations. The “membership fees” are typically a percentage (anywhere from 2-5% has been spoken of) of the average gross sales from the previous five years.

Thus, some large businesses are growing earnings by laying off employees to shave expenses and strong-arming its suppliers, resellers, wholesales into a de facto hair cut on prices. In other words, earnings are not increasing per se due to innovation or productivity gains, true signs of a sustainable and healthy economy, but by expense control which tend to create short-term spikes in earnings.

If you assume: (a) that small and medium sized enterprises (SME) are being harmed by these tactics; (b) studies indicate that SME are the leading sources of employment growth (since SME cannot out-source entire departments like multi-nationals can); and (c) smaller profit margins means SME’s are less likely to hire a full complement of employers, then we could be seeing a jobless recovery where large businesses do well but the average taxpayer fares poorly.

For the average investor, as the linked article suggests, a measured and prudent approach is warranted. There is no need to rush back into the market in full force (especially since one could be buying high after selling low) or to continue to stick one’s head in the sand. It may be safe to assume that the only certainty to base an investing strategy or tactics on is assume uncertainty in the short to medium term.