Downhill From Profit Peak
"I think we start off the year with a bang and end with a whimper," he said.
Analysts are looking for earnings to climb just 7.6% in the first three months of the year, the weakest pace of growth since the third quarter of 2002. For the whole year, earnings are projected to rise 10.5%, down from more than 19% in 2004.
Metz said even those estimates could be at risk if the Federal Reserve raises interest rates aggressively and slows down economic growth more than expected.
In the minutes of the Fed's last meeting, policy officials said inflation could become a problem without further tightening. Economists are generally looking for short-term rates to climb to between 3.25% and 3.5% by the end of the year, up from 2.25% currently."I would expect by end of the first quarter, the picture will have changed and the universal euphoria will have given way to more skepticism," Metz said. Brett Gallagher, head of U.S. equities at Julius Baer Investment Management, said that while he expects some companies to lower their profit estimates over the next few weeks, most of the downward revisions are likely to come later in the year. "Expectations are building in a best-case scenario and not leaving a lot of room for error," he said. "I suspect with interest rates moving up and the economy being as unpredictable as it is, that this finds its way to earnings." Some analysts note that high energy prices could also depress profit margins this year. So far, companies have been forced to absorb these expenses rather than pass them on to consumers. Last week, Delta Air Lines (DAL), Northwest Airlines (NWAC) and other airlines actually lowered air fares in an effort to lure customers.
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