Blackstone’s Wien: Stock Market Is ‘Very Excitable’

Friday, 01 Mar 2013 08:42 AM

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Equity investors, who have pushed major market indices to five-year highs in recent days, are failing to focus on fundamentals, which aren’t very positive, says Byron Wien, vice chairman of Blackstone Advisory Partners.

“The economy is going to disappoint. Earnings are going to disappoint,” Wien tells CNBC. The economy grew only 0.1 percent in the fourth quarter.

As for corporate earnings, 79 companies in the Standard & Poor’s 500 have warned that their future profits won’t meet analysts’ consensus forecast, while only 19 have said they will exceed expectations, according to Thomson Reuters.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

The combination of the payroll tax hike that started Jan. 1 and the automatic spending cuts will put a damper on the economy, restraining government and consumer spending, Wien maintains.

People are “oblivious” to the end of the 2 percent payroll tax cut and the effect on spending, he says.

On the profit side, “revenue growth will be modest, and some costs will increase, so I think earnings estimates will be trimmed down,” Wien notes.

Moreover, market sentiment is “beginning to verge on the euphoric, and that’s always a danger period,” he adds.

Although the market is experiencing some pullback, it surges ahead, indicating that those who weren’t in the market during January’s rally are getting in.

“Eventually the fundamentals, what's going on in Washington, the earnings disappointments will take over and the market will become a more reasonable place,” he explains. “But right now it's very excitable.”

While Wien isn’t predicting a bear market, he expects stock returns in single digits in 2013, not double digits.

Wien’s not the only one who thinks the market isn’t confronting reality.

“The optimism that got built into the market assumed that things were going to get a lot better,” Bruce McCain, chief investment strategist at Key Private Bank, tells The New York Times.

“Truly, things are not getting really good. They are just so-so, as they have been.”

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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