Tags: Brown | earnings | cliff | bearish

Blogger Brown: Beware the Earnings Cliff

Wednesday, 07 Nov 2012 08:34 AM

By John Morgan

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Josh Brown, author of The Reformed Broker blog, is sounding a bearish call for investors, a tone he expects to continue with regardless of the outcome of the election.

Brown told Yahoo that what would ultimately determine the stock market’s direction is not politics or a fiscal cliff, but rather an earnings cliff.

“The third-quarter earnings season was just atrocious and the guidance was not that much better,” said Brown, who is also a vice president at Fusion Analytics, an asset management firm.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“The top line is slowing noticeably and no one is immune to what’s going on overseas.”

In its October letter to clients, Fusion Analytics wrote: “We are seeing increasing signs that the cyclical bull market that began in March 2009 may be — finally — coming toward its end. In light of this, we have cut back on some major holdings, and raised our cash levels to 25 percent in the asset allocation models.”

Brown elaborated on that view. “The earnings picture is very dire, and seems to be getting worse,” he said.

Brown said big technology firms are “un-investable” and energy stocks are likewise not providing leadership. He said the sector exception with upside is healthcare, but that leadership from a single sector alone does not represent a bull market.

Fusion Analytics reported curtailing its energy assets by half, eliminating emerging markets exposure and cutting its Standard & Poor’s 500 dividend allocation by 50 percent. Some of the firm’s largest remaining holdings include Johnson & Johnson, Merck and Visa.

Meanwhile, history indicates a year-end stock market rally is likely in the cards regardless of election outcome, according to USA Today.

S&P 500 stocks have gained 0.9 percent on average in November during election years since 1928, the newspaper said, according to data compiled by Bespoke Investment Group. December gains have averaged 1.7 percent during the same time period.

Paul Hickey, Bespoke’s co-founder, predicted stocks would end 2012 on a positive note.

"We would expect … the market to rally following Election Day as some of the uncertainty from the market is lifted and the poor third-quarter earnings are digested," he said.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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