Tuesday, April 15, 2008
Ambrose Evans-Pritchard writes in the Telegraph UK about recent warnings to U.S. stock investors from Wall Street giants Goldman Sachs and Wells Fargo.
It seems that corporate earnings tend to suffer during economic slowdowns and, when earnings suffer, share prices tend to follow suit.
What a concept!
Whatever happened to the good old days when you could always count on Goldman Sach's perma-bull Abby Joseph Cohen to explain how the world works?
Abby's replacement is looking for a 27 percent decline from the S&P500 peak!!
David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the "near term" as companies scramble to lower their outlook for this year.Mr. Kostin noted that the full-year guidance offered by companies will be much more important than first quarter profits as companies assess the impact of a slowing economy on the bottom line.
"Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance," he said in a research note published today, entitled 'Fasten Seatbelts'.
Mr Kostin, who replaced the ever-bullish Abby Cohen as chief strategist in December, expects the S&P index to reach 1,160, which would amount to a fall of 27pc from the bull market peak of 1,576 in September and enter the annals as a relatively severe bear market.
Scott Anderson, chief economist at Wells Fargo, is equally pessimistic, describing the bullish views of some market players as "bordering on delusional".
"The equity markets have not yet priced in a prolonged downturn in economic growth in my opinion. We are still in the early stages of the credit crunch. Earnings estimates for the second half of the year are likely still far too high," he said.
As they say on CNBC, "So, what are you buying?"