Two Major Roadblocks Are Keeping the S&P 500 From a New Record

And they're moving in different directions.

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The S&P 500 still has two major hurdles to overcome before it can set fresh all-time highs, according to Societe Generale SA.

The first-quarter earnings season reinforced two problems for companies in the benchmark index, which ahead of the open on Thursday sat less than 1.5 percent away from its record closing high, reached in May 2015.

Top-line growth remains elusive, said Head of Global Research Patrick Legland, which isn't too surprising in light of the downturn in global trade volumes.

Source: Societe Generale

"Sales growth depends increasingly on currency changes," Legland writes, because of a slowdown in global demand and subdued consumption in the U.S.

In other words, if the actual volume of sales isn't growing much, S&P 500 firms need the dollar value of those sales to rise in order to generate stronger revenue growth.

The weakness in the U.S. currency seen during the first four months of 2016 promised to bring about the end of Corporate America's biggest headache and bolstered the domestic economic outlook, to boot. However the renewed desire of the Federal Reserve to continue raising interest rates, should economic data and financial markets cooperate, sent the greenback on a tear in May.

As a result, the U.S. trade-weighted major currency index has flipped back into positive territory on an annual basis, suggesting that this drag on revenue growth may not abate soon.

Source: Bloomberg

The recent performance of equity markets around the world makes it clear that the retreat in the greenback was indeed what facilitated the resurgence of riskier assets that began in the middle of February, according to SocGen Global Head of Quantitative Strategy Andrew Lapthorne.

"While equity markets have been okay but not incredible in recent weeks, a whole string of USD related trades feature amongst the leaders and laggards," writes Lapthorne.

Meager global economic growth has made the U.S. currency "critical for the S&P 500, given the elevated valuation levels," adds Legland.

Meanwhile a Morgan Stanley team led by Chief European Economist Elga Bartsch suggested yesterday that we could be in the midst of a respite in global trade woes — albeit one that could prove fleeting.

The bank's global trade leading indicator "seems to point to a tentative recovery in global trade growth in the course of the second quarter, underscoring our forecasts for a recovery in global growth in the spring," according to Bartsch. Looking ahead, the bank will also keep an eye on whether the policy-induced mini-upcycle in China could end sooner than expected, she writes — something that could portend headwinds for a recovery in global trade.

That means these two major hurdles could be moving in opposite directions in the near future, in the event that an improvement in the global growth environment coincides with a mid-year hike from the Federal Reserve that has yet to be fully priced-in.

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