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I've written about macro headwinds for the stock market before. Recently David Rosenberg, former chief economist at Merrill Lynch, now chief economist at Gluskin Sheff, indicated that the stock market is pricing 4.25% GDP growth:

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%. [click to enlarge]


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.

Source: A V-Shaped Recovery with 4-8% GDP Growth?