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Analysts Turn Negative


Here’s a troubling sign for U.S. stocks: Equity analysts, the people who should know these companies best, are rapidly lowering their expectations for profits this quarter.

Analysts now expect fourth-quarter earnings to fall 0.5% from a year ago, according to Reuters Estimates. Just last week, analysts were expecting earnings to rise 1.5%, and on Oct. 1, when the quarter started, they expected an earnings increase of 11.5%.

One factor here is a rising level of concern about the U.S. economy overall.

However, a glance at analysts’ predictions by sector is interesting:

The vast majority of the earnings drop is expected to occur in financial stocks (a 44% drop) and basic materials (a 10% drop). Just a 2% fall is predicted for cyclical consumer, which showed far more weakness last quarter. All other sectors are expected to show growth, some of it quite strong: Healthcare earnings are expected to rise 12%, while technology profits could surge 25%.

So for now it’s a Jekyll and Hyde stock market. When earnings figures actually arrive, we’ll see if the good outshines the bad, or if the bad news spreads, weakening the strong sectors.


Steve Ballmer, Power Forward
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