Wall Street May Be Getting Ahead Of Itself
February started off on the same foot: The Dow finished up Friday 149 points to 14,010 and the S&P 500 rose 15 points to 1,513.
But the market may have gotten ahead of itself.
Now that half of companies in the S&P 500 have reported fourth-quarter earnings, profit growth is expected to be up 5.8 percent, according to S&P Capital IQ. While solid, that's a smaller gain than a year earlier, and the slowdown could continue. Earnings growth is expected to slow to 1.7 percent for the first quarter.
Corporations continue to lower investor expectations. Of the companies that have issued earnings guidance for the first quarter, 82 percent have reduced estimates, according to FactSet. In response, analysts have sharply cut earnings growth expectations over the last month â¿¿ by half for the first quarter and by 16 percent for the second quarter."Earnings are not a reason to be buying stocks right now," Knapp says. Talley Leger, investment strategist at Macro Vision Research, notes that the stocks that have helped propel the market higher in January are companies in so-called "defensive" sectors â¿¿ such as health care providers and consumer staples producers. Those industries continue to perform well when the economy slows down because people still need to buy medicine and basic goods like shampoo and diapers. "The market is slowly starting to realize that an air pocket opened up between where stocks thought the economy was and where the economy actually was," Leger says. Leger and others predict a dip in the market sometime in the next three months as investors realize economic and corporate growth aren't quite as strong as predicted. But that could allow the stock market to grow again in the second half of the year. While the economy might not yet be ready to accelerate quickly, analysts remain confident that it will keep growing.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV