The markets' sweet spot sours

The recession 'sweet spot' of 2009, which saw bad news keeping interest rates low and good news suggesting recovery, is no more. And recovery looks set to be sub-par for a long time.

Most markets saw in February with solid gains, but so far2010 has been heavy going. The S&P 500 slid by 3.7% in January, its worstmonth since March 2009. The FTSE 100 lost 4%. We've had the biggest correctionglobally since the rally began, says John Authers in the Financial Times.

Bad news is no longer shrugged off, while good newsdoesn't invariably provide a fillip. One problem is that markets had alreadypriced in a strong earnings and economic recovery. The S&P's cyclicallyadjusted p/e, for instance, is 25% above its historic average. The fact thatsurprisingly strong fourth-quarter earnings have been greeted withprofit-taking suggests that the massive rally since March "bought and paid for"strong fourth-quarter earnings, says Michael Santoli in Barron's.

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