ROSENBERG: Here are 4 big obstacles facing the stock market

David RosenbergScreenshot via Bloomberg TVDavid Rosenberg

It was a rough day for stocks.

In a note to clients on Wednesday, Gluskin Sheff’s David Rosenberg took a step back to highlight four of the biggest obstacles facing the bull market.

Here’s what Rosenberg outlined:

  1. Earnings momentum has slowed. Bottom-up consensus forecasts for SP 500 operating earnings growth in the first quarter have fallen to -3.1% from +5.3% year-over-year. “The second quarter has been sliced to -0.7% YoY as well, so technically speaking we could be looking at a mild profits recession here in the US – this is down from the +5.9% estimate at the start of the year,” he wrote.
  2. Valuations are high. The trailing P/E ratio is 20x, compared to the long-run norm of 16x. “It actually is not all that uncommon to see the equity market up in years when EPS growth is flat-ish (as the consensus now believes for 2015) but that requires price-to-earnings multiple expansion.”
  3. Economic data has been disappointing. The Citigroup Economic Surprise Index is at the lowest level since August 2011, and in that month, the SP 500 dipped in a way that led some to think the economic cycle was turning.
  4. The strong dollar is hurting profits. “There is such a thing as too much of a good thing,” Rosenberg wrote, and the dollar bull market is not over. He advised investors to avoid sectors that have EPS forecasts below zero, including Utilities (-6.6%) and Telecom (-0.8%.)

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