Morgan Stanley’s Parker: Stocks Will Drop 14 Percent by Year-End

Wednesday, 11 Jul 2012 07:09 AM

By Dan Weil

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Many analysts predict that U.S. corporate profit growth slowed markedly in the second quarter, and some think that will push stocks lower as earnings reports are released.

Adam Parker, chief stock strategist at Morgan Stanley, has a year-end forecast of 1,167 for the Standard & Poor’s 500 Index. That represents at 14 percent drop from the recent level of 1,353.

"The pillar of strength is U.S. corporate earnings, and now we're seeing signs that is cracking," he tells The Wall Street Journal.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

Analysts on average project a 1.8 percent drop in profit for S&P 500 companies for the second quarter, according to Bloomberg. That’s a reversal from April’s forecast of a 2 percent gain.

Already, 42 companies, including Ford and Texas Instruments, have announced that second-quarter profits won’t meet their expectations.

The cause is sluggish global economic growth and Europe’s financial crisis.

Surprisingly enough, analysts still have more buy ratings than sells and holds on 247 companies in the S&P 500.

Stock market bulls say that despite their declining growth, earnings are on pace for a record year, and the S&P 500 stands 16 percent below its average valuation since the 1950s.

But bears are undaunted.

“There’s a risk to just jumping in just because stocks are cheap,” Wayne Lin, a money manager at Legg Mason tells Bloomberg. “They may be cheaper later. . . . We are going to start to see weakness flow through to corporate earnings.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible



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