The 15% run since mid-November (or 60% annualized return) in the S&P 500 is attributed to the optics of tail-risk reduction and a renewed flood of central bank liquidity. However, as UBS notes, downside risks appear to be rising, with volatility increasing, investor sentiment readings starting to wane, and flows into equity funds turning negative. They believe, confirmed by the following five (*well seven) charts, that fundamentals remain relatively weak. On the 'top-down' macro-economic front, their US growth surprise index has rolled over, and consensus GDP expectations are down. On the 'bottom-up' earnings front, S&P 500 companies (ex-Financials) beat by 4.5% in 4Q but this followed a 6.1% downward revision coming into earnings season. Moreover, guidance has been weak, and revision trends remain negative. The consumer is suffering from near-term pressure, and recently, a number of companies have signaled near-term consumer softness attributed to higher tax rates, delayed refunds, and rising gas prices which perhaps explains why it has been 42 weeks without net positive EPS revisions.
Top-Down...
[5]
and Bottom-Up...
[6]
and as a brief reminder (and bonus sixth 'top-down' chart) here is the latest data point out of the US and what it is signaling...
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and just for good measure, a bonus bonus seventh 'bottom-up' chart showing it has been 42 weeks now without net positive EPS revisions...
[8]
Charts: Bloomberg, UBS, and @Not_Jim_Cramer