The S&P 500 is trading at near record high levels on the back of liquidity glut in the financial system. I mention the liquidity factor because all other fundamental factors do not support current levels and valuations.
The charts below give the S&P 500 operating earnings and as reported earnings growth (calculated on a TTM basis).
Very clearly, the earnings growth momentum is on a rather sharp decline. This is understandable considering the following facts -
1) Euro zone is in a recession and the IMF project negative growth for the Euro zone in 2013
2) China has witnessed a meaningful slowdown and growth momentum is unlikely to pick up soon
3) India is also witnessing a slowdown and government policy paralysis will continue to hinder growth
4) The US might also be heading for a slowdown with negative growth in March 2013 retail numbers
All these factors combine to suggest weak global economic activity. Also, growth momentum will not pick up in the foreseeable future. Amidst these concerns, it is surprising to see the S&P 500 trading at near record highs. The most likely conclusion is the liquidity factor as there is no other positivity the equity markets might be discounting.
Considering these factors, I would suggest investors to stay away from the markets for the remainder of 2013 in terms of considering fresh exposure. Investors can also consider lightening their equity portfolio amidst the current slowdown. Any meaningful correction over the next few quarters will give a good buying opportunity.