Nice note here out of Citi Europe:
The 25% market rebound that started in early March has not coincided with the bottom of the earnings cycle. Since then, forward earnings expectations have continued their downward trajectory. Prices have decoupled from earnings. Have we arrived at the twilight zone? Our global strategists refer to this as the period during an earnings cycle where stock prices begin to stabilise but profits continue to fall.
2009 is shaping up to look more like a twilight zone. Earnings are falling faster than share prices, the market is re-rating, cyclicals are re-rating aggressively and earnings momentum strategies are struggling — all signs of twilight zones. Are we saying that the next bull market has started? No but we are saying that markets have stabilised and are unlikely to fall beyond the March 2009 lows. Earnings declines have further to go from here. So with flattening prices and falling earnings, we think this is the start of a protracted twilight zone. It is sensible to gradually increase exposure to risk through the year. But, near term we would be less willing to chase the current risk rally.