U.S. stocks will stay at current levels in 2011 as companies struggle to beat analyst estimates amid slower economic growth, according to Edward Yardeni, chief investment strategist at Yardeni Research Inc.
“For the S&P 500, I don't expect we will cover much ground when we look at the trend over the rest of the year,” Yardeni said in an interview on Bloomberg Radio's “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “The main reason is that earnings estimates are just too high,” he said. “For the past nine quarters, industry analysts were too low and there were lots of positive surprises. That's going to be a little more challenging going into the upcoming earnings season.”
S&P 500 earnings are poised to reach a record $99.74 a share this year, according to the average of securities industry estimates compiled by Bloomberg, after companies beat projections for 10 straight quarters. Analysts are more optimistic about earnings since the S&P 500 peaked at a three- year high on April 29, driving their forecast up from $98.73 a share that day.
Economic growth will stay suppressed as the U.S. fails to add jobs and Europe fights to stay out of a
recession while attempting to solve its fiscal crisis, according to New York- based Yardeni, 61, who estimates that gross domestic product in the U.S. will expand 1.5 percent to 2 percent in the second half of 2011 and less than that on a global basis. The benchmark index for U.S. equities has fallen as much as 18 percent from a three-year high on April 29.
U.S. Growth
“I'm just looking for slow growth from the U.S.,” the strategist said today. “We've clearly got the risk that Europe falls into a recession, maybe a modest recession in the second half of the year. All of that suggests that corporations that have had a lot of success finding revenue and earnings growth on a global basis may find it a little more challenging in the next couple of quarters.”
Economists have been cutting their forecasts for growth, according to a Bloomberg News survey taken from Sept. 2 to Sept. 7. The median forecast calls for a 1.8 percent annual pace of expansion in the third quarter, down from 2.1 percent in the previous month's survey. Growth next year is forecast to average 2.2 percent, down from 2.4 percent.
“I do think that the stock market is going to do better next year,” said Yardeni, who predicts corporate earnings growth of 5 percent in 2012. “Earnings are going to continue to grow, I'm not looking for recession,” he said. “Valuation multiples are probably not going any lower, they are awfully depressed.”
Wall Street firms say S&P 500 profits will increase 18 percent for all of 2011 and 12 percent in 2012. The gauge trades for about 12.9 times reported income, up from the 2 1/2-year low of 12.2 reached on Aug. 8 while still below the average of 16.4 since 1954, according to data compiled by Bloomberg.
--Bloomberg News--
