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Monday, 24 November 2008
Plunging Stocks Leave Analysts Bewildered
Analysts have cut profit estimates for 48 per cent of the stocks they cover worldwide, the most in at least 15 years, and more downgrades are likely as the economy slows.
Analysts have cut profit estimates for 48 per cent of the stocks they cover worldwide, the most in at least 15 years, and more downgrades are likely as the economy slows.
According to JPMorgan Chase, predictions of next year’s earnings were reduced for 60 per cent of US stocks in the four weeks through to November 11. In Europe, 44 per cent were downgraded, the study said.
Investors preceded the downgrades by dumping equities this year as analysts appeared late in assessing the effect of the global recession on company earnings. The MSCI World Index tumbled 19 per cent in October, its worst monthly performance ever, following a 12 per cent decline in September.
“While analysts seem to have finally cut their expectations sharply, they are still not in line with the pessimistic investors’ expectations,” said Marco Dion, who led the research. “Given the current economic landscape there is, however, very little reason to imagine many stocks will be receiving upgrades.”
Companies from chipmaker Intel to Swiss Life Holding, Switzerland’s biggest life insurer, have scrapped their own forecasts or indicated the credit market crisis has filtered through to the wider economy and is hurting sales.
Analysts now expect companies in the Standard & Poor’s 500 Index to post an annual profit decline of 9.5 per cent this year, followed by an 11 per cent rebound next year. The worst annual decline in the S&P 500 has dragged down every industry in the benchmark gauge and 97 per cent of its stocks.
All 64 of the S&P 500’s “level-three” categories - groups such as “distributors” and “leisure equipment” - dropped this year. Among 500 stocks, 483 slipped as the index fell 49 per cent, poised for the biggest yearly retreat ever.
“There seems to be no bottom,” said Laszlo Birinyi, president of Birinyi Associates in Connecticut. “We have no tools that tell us where to go now.” More stocks have decreased than in the 49 per cent rout after the technology bubble burst in 2000. The breadth of declines this year is leaving investors without defensive strategies to protect against losses that erased more than US$8 trillion from American equities this year.
During the S&P 500’s retreat between March 2000 and October 2002, nine industries climbed and tobacco and health care rose more than 80 per cent. The S&P 500 reached an 11-year low last week but seemed to rally up as investors speculated Citigroup might sell part or all of itself.
“None of us know at what point we’ve sufficiently priced in all of the negative economic news,” said Liz Ann Sonders, a fund manager.
Among industries in the S&P 500, biotechnology companies have fallen the least, with a 3.6 per cent drop. Thirty-two lost more than 50 per cent, led by a 90 per cent decline in thrifts and mortgages.
“It’s certainly dysfunctional markets, not tied to anything but the vagaries of emotions,” said James Paulsen, who helps oversee about US$220 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The fundamentals of the world aren’t changing as fast as these prices are.”
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Plunging Stocks Leave Analysts Bewildered
Bloomberg
23 November 2008
Analysts have cut profit estimates for 48 per cent of the stocks they cover worldwide, the most in at least 15 years, and more downgrades are likely as the economy slows.
According to JPMorgan Chase, predictions of next year’s earnings were reduced for 60 per cent of US stocks in the four weeks through to November 11. In Europe, 44 per cent were downgraded, the study said.
Investors preceded the downgrades by dumping equities this year as analysts appeared late in assessing the effect of the global recession on company earnings. The MSCI World Index tumbled 19 per cent in October, its worst monthly performance ever, following a 12 per cent decline in September.
“While analysts seem to have finally cut their expectations sharply, they are still not in line with the pessimistic investors’ expectations,” said Marco Dion, who led the research. “Given the current economic landscape there is, however, very little reason to imagine many stocks will be receiving upgrades.”
Companies from chipmaker Intel to Swiss Life Holding, Switzerland’s biggest life insurer, have scrapped their own forecasts or indicated the credit market crisis has filtered through to the wider economy and is hurting sales.
Analysts now expect companies in the Standard & Poor’s 500 Index to post an annual profit decline of 9.5 per cent this year, followed by an 11 per cent rebound next year. The worst annual decline in the S&P 500 has dragged down every industry in the benchmark gauge and 97 per cent of its stocks.
All 64 of the S&P 500’s “level-three” categories - groups such as “distributors” and “leisure equipment” - dropped this year. Among 500 stocks, 483 slipped as the index fell 49 per cent, poised for the biggest yearly retreat ever.
“There seems to be no bottom,” said Laszlo Birinyi, president of Birinyi Associates in Connecticut. “We have no tools that tell us where to go now.” More stocks have decreased than in the 49 per cent rout after the technology bubble burst in 2000. The breadth of declines this year is leaving investors without defensive strategies to protect against losses that erased more than US$8 trillion from American equities this year.
During the S&P 500’s retreat between March 2000 and October 2002, nine industries climbed and tobacco and health care rose more than 80 per cent. The S&P 500 reached an 11-year low last week but seemed to rally up as investors speculated Citigroup might sell part or all of itself.
“None of us know at what point we’ve sufficiently priced in all of the negative economic news,” said Liz Ann Sonders, a fund manager.
Among industries in the S&P 500, biotechnology companies have fallen the least, with a 3.6 per cent drop. Thirty-two lost more than 50 per cent, led by a 90 per cent decline in thrifts and mortgages.
“It’s certainly dysfunctional markets, not tied to anything but the vagaries of emotions,” said James Paulsen, who helps oversee about US$220 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The fundamentals of the world aren’t changing as fast as these prices are.”
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