Markets rise but downward earnings revisions pose risk

Markets rose on Monday.

The S&P 500 snapped a five-day losing streak, jumping 1.5 percent. Earlier in the day, the Shanghai Composite surged 1.9 percent and the STOXX Europe 600 rose 0.8 percent.

Federal Reserve Chairman Jerome Powell said in an interview on Sunday that “there is no reason why this economy cannot continue to expand”. Indeed, a report on Monday showed that US retail sales rose 0.2 percent in January.

Still, Morgan Stanley's chief US equity strategist, Michael Wilson, said in a note that there is more downside risk ahead for investors.

“Earnings revision breadth has been some of the worst we have ever witnessed with both sales and margin guidance coming down across all sectors,” he said. “We think it is likely this gets worse before it gets better given the downward adjustment to earnings forecasts we expect.”