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Now that the equity market seems to be on teeter totter as it ponders its next move, I recently wrote that:

Now that prevailing sentiment has moved from “Armageddon is around the corner” to “green shoots”, the next turning point will likely occur when the fast money ponders the question of what happens next, now that we seem to have stabilized.

The next test

Certainly the macro picture is improving. There are sporadic signs of green shoots here and there. In addition to the US data, Brad Setser reports that there are also tentative signs of recovery in East Asia as the Korean data, which is the most timely, is pointing to recovery. After the close, we saw Intel (NASDAQ:INTC), which is an economically sensitive semiconductor company, making positive noises about its 2Q outlook.

On the other hand, the Pragmatic Capitalist indicates that there is no sign of recovery in US rail traffic data. Moreover, Obama’s tax proposals could significantly diminish investors’ risk appetite (but then, someone has to pay for those enormous deficits).

The market has a way of saying “what have you done for me lately?” Now that a recovery is getting built into investor expectations, these negative fundamentals could prove to be a nasty surprise in the near term.

Watch out for the downside.