Return of risk appetite may not last (Mar 09)

Equities have rallied sharply since hitting fresh lows on the 9th March. The bounce has been driven by troubled financials, which have been buoyed by the US Treasury’s plans to deal with “legacy” assets. Yet all non-financial sectors of the market continue to trade on significantly higher earnings multiples than they did in the deep recession of the early 1980s. History also suggests that stock markets typically only recover six months or so before a turning point in the business cycle has been reached. For these reasons, we are sceptical that the rally will last. Our target for the S&P500 remains 650.