Raw Finance

With the S&P 500 now rallying above the 1000 point threshold for the first time since November 2008, investors should be concerned that the market’s expectations for earnings growth are now well out of line with what the future may hold.  Consider that central banks around the world are holding their key interest rates at record low levels, including the U.S., where the federal funds rate target is essentially zero.  Clearly central banks do not believe that a roaring recovery is just around the corner.

Further, we should consider the opinion of corporate CEOs, who should know best what’s going on in their respective industries.  A recent McKinsey Global Survey shows that CEOs’ outlook for the world economy has brightened after staring into the abyss last winter; but the survey also reflects that expectations for growth going forward are muted at best. 

From McKinsey: 

More executives—42 percent—pick the description “battered but resilient” for the global economy than any other. Yet their other responses indicate that they see the economy as battered enough to prevent a large-scale economic recovery from arriving anytime soon. The share expecting an upturn to begin in 2009, for example, has fallen to 20 percent, from 28 percent, over the past six weeks, and the percentage of respondents who think that their national economies will be better at the end of the year—37 percent—equals the percentage who think their national economies will be worse.

The global economy is “battered enough to prevent a large-scale economic recovery from arriving anytime soon.”  Investors may want to mull over that statement before pouring money into a greatly overbought stock market.