World Clock

Monday, 30 August 2010

Pessimism Overides Strong Coorperate Earnings

New data compiled by Bloomberg highlights growing pessimism among analysts, which is beginning to worry investors as their attention shifts from strong cooperate earnings to macro-economic data and the potential of a double-dip recession.

  • For the first time since 1997 fewer than 29% of ratings for stocks covered by brokerages worldwide are "buys", according to 159,919 recommendations compiled by Bloomberg.
    • This flies in the face of strong cooperate earnings, recently announced in the Q2 earnings season
      • the reason for this is because investors are becoming increasingly concerned with the global economic outlook, which as recent economic data suggest is looking "unusually uncertain" to quote Ben Bernanke chairman of Federal Reserve.
  • This kind of sentiment is summed up perfectly by Paul Zemsky, head of IG Investment Management who says  "Boy theses companies look pretty good, earnings look OK, they have plenty of cash. What if there is a double-dip"
    • Also the recent announcement by Intel saying that Q3 earnings will be lower than previous estimates only adds to investor fears.
  • Additionally the report also shows that 54% of ratings for companies in the US, UK, Japan & Brazil are holds, clearly demonstrating a market that currently lacks conviction
    • This case is highlighted further when investors today (Mon 30th August) gave back most of the gains that were accumulated on Friday - a "sell the rally" approach that seems to dominating the market of late.
Despite all this pessimism, analysts say that profits for companies in the MSCI World Index of 24 developed nations will gain 28% in the next year. This index currently trades at 11.5X forecast earnings, which is historically low given the fact that apart from the six months starting from October 2008 the index has never traded below 12.5X reported earnings.

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