Based on past linkages between earnings trends and the pace of economic activity, believe it or not, the S&P 500 is now de facto discounting a 4¼% real GDP growth rate for the coming year. That is what we would call a V-shaped recovery.
Raising the GDP growth stakes
Over at Hussman Funds, William Hester wrote an article entitled Earnings Growth Forecasts May Require a Robust Economic Recovery, which may have raised the stakes on Rosenberg's analysis.
Hester analyzed the relationship between implied earnings growth and nominal GDP growth, shown in his chart below. (Note: I have annotated the chart to interpolate a nominal GDP growth of about 10% and the 10% interpretation is strictly my own.) If we assume an inflation rate of around 2% and look at the interpolated nominal GDP growth of 10%, it suggests that the market is discounting real GDP growth of about 8%.
Is 4-8% real GDP growth realistic? It would be quite a V-shaped recovery.
Deteriorating technical conditions
Meanwhile, Barry Ritholz at The Big Picture wrote that the market is rallying on lower volume and deteriorating breadth:
Ron Griess of The Chart Store points to the rally continuing on decreasing volume. I would also note that breadth is softening as well.
An exuberant and over-the-top-giddy equity market derived macro outlook and deteriorating market technicals isn't exactly encouraging for bulls.
Don’t say that you weren’t warned.