Why the US recovery could be a protracted event

ON THE US

The rise in the S&P 500 since the start of 2012 reflects better-than-expected US economic data and large global central bank liquidity injections, which are led this time by the ECB.

However, several developments suggest that the market surge will not be plain sailing. The year-end reporting season has been unusually disappointing with many companies sounding more cautious about the future, especially the cyclical ones. The breadth of the rally has been narrow with just 20 stocks, mostly large cap financial and technology companies, accounting for 40% of the index rise. Other concerns include the presidential election in November, whose choices do not look inspiring to us, and the lack of progress in tackling the budget deficit. More positively, the US economy appea...