There is a consensus, and it ain't bullish. The negativity is beyond obvious. Those in the media want to tout 'the optimists' are wrong, but every "optimist" comes with a caveat of prolonged market weakness. There are little to few optimists left. The treasury yield indicates this.
1. Since the rally started in March 2009, the market has been trading with trailing PE of around 14. (For the sake of this exercise, lets just use 14.)
2. There is only 2-3 more weeks until the year ends, a 2011 SP500 eps of 95 is extremely reasonable. An SP500 at 1205 and an eps of 95 give the market a trailing PE of 12.6.
If this market typically trades with a trailing PE of around 14, but its trading at 12.6, that means the equity markets are assuming earnings will be reduced by some 10%. And every time the market goes down from here, it assumes a greater earnings reduction.
At 1205, the market will assume an eps of around 86 (a decline of 9%).
At 1150, the market will assume an eps of around 82 (a decline of 13%).
At 1100, the market will assume an eps of around 78 (a decline of 17%).
At 1075, the market will assume an eps of around 76 (a decline of 19%).
And so on.
Are these declines reasonable? Listen to the chatter for 5 minutes, and it will give you all the justification you need to believe it to be true. The chatter from the EU and China alone are enough to do that.
But there is one unwavering fact, government austerity alone does not reduce corporate earnings by 20%. Believe it or not, the austerity imposed at the state level of the United States did not impose a contraction to corporate growth.
Will a sovereign default or debt down grade cause a 20% reduction in corporate earnings growth? When Greece defaulted (I mean restructured) it did not. When Standard and Poors downgraded US debt, there was no impact to corporate earnings.
The lack of interest in the current market, and all the bleak chatter, the players that control this market will keep assuming the worst, until proven otherwise.
But make no mistake, anyone who is now negative, is part of the consensus.