ROSENBERG: This Is Definitely Not An Earnings-Driven Stock Market Rally

Some believe it has been driven by improving fundamentals. Others believe it has been driven by the Federal Reserve's easy monetary policy.

In a recent note, BTIG's Dan Greenhaus noted that the S&P 500 climbed 128 percent during a period when earnings jumped 129 percent.

In other words, he believes there's a strong case to be made that the market reflects an earnings-driven rally.

But economist David Rosenberg believes that this assessment is faulty.

He takes a page out of Lakshman Achuthan's book and notes that year-over-year earnings growth has gone negative. From Rosenberg's Friday research note:

If contraction and recession are synonymous, then an earnings recession is already underway. These talking heads on CNBC are talking about an 'earnings-driven rally'. I have no clue what they are talking about. My database is from Haver Analytics, who get their numbers from Standard & Poor's, and the latest update was on March 6th. And at last count, S&P 500 Q4 operating EPS is running at -1.7% on a YoY basis, and at a $23.32 estimate right now for last quarter, it is actually running only moderately above the level prevailing in Q4 2006 ($21.99). So on this basis, earnings have only eked out a mere 0.8% annualized gain over the past seven years.

Rosenberg offers this chart:

He argues that this is not an earnings-driven rally. Rather, it has been driven by multiple expansion. In other words, the ratio of the S&P 500 to earnings is on the rise.

On a weekly basis, using reported quarterly earnings (four-quarter moving total), the P/E multiple is approaching 18x, a two-year high, and a two point expansion from a year ago. So it is a multiple expansion-led rally, not an earnings-led rally, and saying 'multiple expansion' today is no different than talking about 'Fed balance sheet expansion.' The two are synonymous.

If you can't tell, Rosenberg believes this rally has been driven by the Fed. He points to the "87 percent statistical relationship between the size of the Fed's balance sheet and the direction of the S&P 500, which now exceeds the time-worn 70 percent correlation with corporate earnings."