Really cannot be much of a debate that the market is trading to a one factor model - the unveliling of the Obama fiscal policy in response to the crisis.
From the trial balloon float of the "Obama-Biden Plan" which allowed Obey to use as a base to write H.R. 1, the stimulus plan. The plan is not Keynesian in nature and will, through simple accounting identities, not offset the rise in savings and the drop in consumption (at one point 70% of the USA NGDP). Simple analysis along the lines of Kelecki-Levy (see previous posts) suggest that SPX earnings - if this is what we have - will be around $30 for 2009. The risk premia per annum in the long intermediates is moving back to pricing deflation as the main risk, close to negative. This means the $30 for SPX 2009 earnings is not a technical one time event but endemic and likely to go lower.
Expectations are being destroyed.
This is a classic preamble of a debt-deflation spiral (Fisher) - though most of us thought we would never encouter this for real and it would never leave the text book pages and be kept as a strange economic history of our grandparents.
The graph shows the SPX noting key releases of Obama's fiscal plan and the market pricing per annum of the risk in holding long intermediate risk free bonds. Basically positive numbers show the market is concerned that the Fed will restrain inflation and maintain their "full employment" mandate. With negative values the market is pricing risk of the opposite that the Fed will have to manage deflation and reflate the market (depression).