Upgrade Monday isn’t having its usual impact on the market.  As has been the trend of late, analysts were very busy over the weekend updating their models and trying to catch-up with the reality of corporate earnings.  They upgraded 3.7 stocks for every downgrade this morning.  In other words, the upgrade cycle is likely far from over.  If not for a number of big cap upgrades it’s very likely that the market would be trading down again today.  It’s truly remarkable how wrong the analyst community has been and continues to be.   I fully expect this catch-up to continue in the coming months.  My models still aim for expectations to peak and/or become substantially more difficult following Q1 earnings reports.  At that level, market risks become highly elevated.

Earnings, on the other hand, have not been the focal point of the markets lately.  The tug-of-war between strong earnings and sovereign debt continues.  For now, the clear winner is sovereign debt, however, I would expect stocks to stabilize once again in the coming weeks or months as investors see cheaper stocks as an opportunity to own equities heading into the next earnings season.  For now, our three pronged worries continue and it’s difficult to justify ownership of the risk trade when there remains little to no clarity on regulation, China and continuing debt woes.

Cullen Roche

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