Barring some major corporate-earnings disappointments over the next several days, there is reason to believe that investors will continue to reward companies for anything that looks like good news, according to Uri Landesman, head of global growth at ING Investment Management Americas.
“At this point, a lot of equities have recovered to the point where survival is not a question like it was at the March market low,” he said. “Now we're back to looking for the kind of return profiles that were in place two years ago.”
Mr. Landesman, who manages $1.7 billion in a large-cap-growth strategy for pension accounts, isn't suggesting that there are logical reasons for the stock market run to continue — only that it likely will continue indefinitely.
As an example of the kind of irrational exuberance fueling stocks, he cited the prevalence of so-called whisper numbers, which represent unofficial Wall Street expectations for corporate-earnings reports.
“The companies aren't giving their blessings to these whisper numbers that are usually the result of sell-side and buy-side analysts' doing their own checks, but if the whisper number is meaningful enough, it's getting out there,” Mr. Landesman said.
For the casual observer, a good indication of whisper number activity is a stock price rally before an official earnings report.
That was the case last week with The
Goldman Sachs Group Inc., which saw its stock price climb from $178.99 on Oct. 1 to $192.28 on Oct. 14, the day before it reported third-quarter earnings of $5.25 a share.
Even though the actual earnings were about $1 ahead of official estimates, the whisper numbers were fueling the stock price run-up, which ended with the actual earnings report.
Goldman shares have since fallen back to the $185 range.
“The preponderance of whisper numbers is the highest I've seen it since the late '90s, and we're back to that kind of market, because I think everyone is willing to conclude that the world is not coming to an end,” Mr. Landesman said. “There does seem to be something unorthodox about all this, but you ignore it at your own peril.”
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