EQUITY markets continued to oscillate wildly last week, though to little end effect. The S&P 500 put us through four days of moves in excess of 4% and managed to finish the week in positive territory, in spite of starting the week with a near 7% fall.

On a very short term view, the market’s assessment of the week seems fair.

The news from Standard & Poor’s was not unexpected and barely interrupted the feeding frenzy on US government bonds, while the Federal Open Market Committee statement similarly provided little we didn’t already know.

Sentiment is still being dictated by fears of a US double-dip recession and the perception that the European sovereign debt crisis is creeping closer to the core of Europe.

At times in the last two weeks it has seemed the only anomaly in all the negative data and news flow has been the outstanding Q2 earnings season in the US.

There are those who dismiss corporate earnings as a backward-looking indicator, which is to some extent correct.

However, for those who believe that the US economy is already in a recession, we would counter that the average peak in annualised trailing earnings has tended to come five months prior to the beginning of a slowdown (looking at S&P 500 earnings changes during the post WWII downturns).

On only two occasions were earnings still rising, as they are now, when a recession actually began: during the 1974-75 oil shock and the 1981-82 monetary-policies induced downturn.