“International equities also rebounded, as the prospects for additional U.S. stimulus, combined with extremely depressed foreign valuations, have justified modest P/E expansion, in our view,” it said. “However, we believe stubbornly high unemployment, weakening consumer sentiment, an unresponsive housing market, heightened regulation, and Europe’s continued sovereign debt malaise, remain negatives to prolonged equity advances as they offset the benefits from lower rates and a still-strong corporate profits/cash position.”
S&P recommends a defensive sector bias “as long-term fundamental and technical risks continue to present obstacles to a renewed bullish outlook.” [Defensive Sector ETFs Lead 2011]
SPDR S&P 500
Full disclosure: Tom Lydon’s clients own SPY.