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    NEW YORK (AP) — Someone is about to play the fool — Wall Street analysts or investors.

    For months, analysts who write reports praising or panning stocks have been saying they were cheap. Investors were unconvinced, buying one day, selling the next. Last week, they mostly sold, and stocks got cheaper yet.

    The Dow Jones industrial average rose slightly Friday but closed the week down 6.4 percent, its worst showing since the depths of the financial crisis three years ago. In the broader Standard & Poor's 500, the selling pushed down all variety of stocks — sexy high techs and staid utilities, risky small companies and cash-rich big ones.

    Stock prices compared to expected profits are now nearly as low as they were in March 2009, a 12-year nadir that marked the beginning of one of the greatest bull markets in history.

    Have investors sold too much, as they did back then?

    "I'd be buying the market," says Citigroup's chief U.S. strategist Tobias Levkovitch, who warned that prices were too high in the spring. Says Harris Private Bank's Jack Ablin, who sold $6 billion or so of stock in August, "We're sharpening our pencils to figure out when to get back in."

    Who's right — or who's about to play the fool — may turn on earnings, or rather, analysts' estimates of how fast they will grow.

    Recently, they've been cutting them for companies in the S&P 500 as fears of another recession spread. But they're still predicting they will earn 13 percent more earnings in the three months through September than they did in the same period a year ago, according to data provider FactSet. That would mark the eighth straight quarter of double-digit gains. And for the full year, analysts say earnings will hit a record.

    "You can toss (those estimates) in the garbage," says Peter Boockvar, equity strategist at brokerage Miller Tabak & Co. "Will Greece go bankrupt? What will be the extent of the global economic slowdown? I can't get that out of an analyst report."

    If history is any guide, more cuts from analysts are coming.

    One ominous sign: Those who changed their estimates this month chose to cut them more than six out 10 times, according to Citigroup. Early last month, raised estimates outnumbered lowered ones by nearly the same ratio.

    Analysts are easy to bash. They usually tend to far too optimistic, cheering on stocks long after they've headed down. Now they want us to believe that companies can continue making record profits in the face of falling housing prices, tightfisted consumers, sputtering U.S. growth and a European debt crisis that is pushing a crucial market for U.S. exports closer to recession.

    But it's worth remembering that it's been the naysayers, the investors, and not the optimistic analysts, who've mostly been wrong lately.

    At the start of the bull market, investors worried that companies couldn't generate enough profits in such an anemic economy. Then companies cut expenses to the bone, and profits soared. Investors next worried that companies wouldn't be able to sell more, and that profits were bound to fall. And then companies defied expectations again with higher revenue, much of it overseas.

    In fact, if anything, analysts haven't been optimistic enough. For several quarters, nearly three out four companies have posted profits greater than analysts had estimated, FactSet says.

    At Friday's close, the S&P 500 was trading at 10.6 times analyst estimates for earnings over the next 12 months. That's low for this so-called earnings multiple, which could mean stocks are cheap. When stocks bottomed on March 9, 2009, they were trading at 10.4 times estimated earnings. The 10-year average is 15.

    Of course, the multiple might not look so appetizing in hindsight if companies' results show the estimates were too high.

    That won't be clear at least for another two weeks when companies start reporting third-quarter results. But already investors are getting a taste of might be in store.

    On Thursday, FedEx Corp., the world's second-biggest package delivery company, met earnings expectations for the three months that ended in August. But it cut its target for full-year earnings, citing a slowdown in shipments from Asia. The stock fell to a two-year low.

    Then, after the markets closed, some good news. Nike, the world's largest athletic shoe maker, posted surprisingly strong earnings. It cited robust sales in India and China. The stock rose 5.3 percent Friday.

    "The highest growth for companies has been in the emerging markets," says John Butters, senior earnings analyst at FactSet. "We're getting mixed signals."

    The good news is that even if analysts ended up playing the fools this time, stocks could still rise.

    Harris Private Bank's Ablin says analysts are "out to lunch" with their cheery projections. But he thinks investors may have overreacted, too. He says they're selling as if earnings will fall 20 percent or so next year, which he thinks won't happen.

    "Investors are so dour, reality could surprise," he says.

     

    31 comments

    • nobody  •  8 mths ago
      Why aren't we having the Wall Street financials who we bailed out or maybe all financials contribute to a 'Reparations fund" for the damage they have caused the world by their dishonesty and greed? Many of these financials are making tremendous profits at the cost of average citizens of the world. They need this "Reparations fund" for the next crisis they will cause. Don't forget also the Savings and Loan crisis in the 80's.
    • jem  •  8 mths ago
      Give more support to the protest on Wall Street. The robbing of a nation happens and only a couple of hundred people show up? They are jailing people that object to Wall street execs robbing the American People !!! Walmart7Wall Street they both do damage to main street !!!
    • ROMAD  •  8 mths ago
      80% of statistics are made up on the spot.
    • Buck  •  8 mths ago
      If only investors decided to buy or sell on earnings, such herd animals [guided not by corporate profit but by fear and greed] would care. By example Lehman Bros registered great paper profits that its Boss/CEO ran off with huge bonuses of hundreds of millions. If only the poor schlubs who believed him could get their money back today, then maybe analysts and corporate reports would be meaingful. Instead, many are like Bernie Madoffs'.
    • DAVE M  •  8 mths ago
      These are the same people who were bailed out,given bonuses,and then ran the price of gas up to $4;00 a gallon.I feel real sorry for them(lol)
    • JOHN VOTER  •  8 mths ago
      It's all on paper until you buy or sell!! The question is timing!!!
    • Keith  •  8 mths ago
      It's not economic worry, it's people pulling their money out of oil speculation, stocks, etc to get some profit on what the Fed announced it would do the other day with the bonds.
    • DAVE M  •  8 mths ago
      Lets see oil at $50 a barrell.It's true value.
    • Dean Martini  •  8 mths ago
      When the DOW hits 8800, the economy will be on the road to recovery. You heard it HERE first!!!
    • True Grit  •  8 mths ago
      caint do nothin' for you son !
    • Nitroholicdave  •  8 mths ago
      Can you say Depression 2.0?
      • RogerD 8 mths ago
        The next Republican Great Depression is upon us if we allow the corporate elite to completely buyout congress...
      • Nitroholicdave 8 mths ago
        I was raised as a Democrat, but to me neither side is making things better. Both sides are making things worse
    • JOHN VOTER  •  8 mths ago
      STOCKS LOWER THAN OBAMA'S RATING!!!
      • True Grit 8 mths ago
        you got the answers? why not share them, smart boy !
      • high tech dub 8 mths ago
        and twice as high as the republican congress...!!!
    • RJ  •  8 mths ago
      When I first started watching and studying the stock market in about 1975, a multiple of 7.5 times earnings was considered the top range for purchasing. Now comes creative accounting, off balance sheet activities, tax and rebate finagles,off shore banking and who knows what else and the analysts want us to believe that a 10.5 multiple is a buy signal. I personally don't believe that if the accounting systems were honest and all factors in net worth were considered, there is a single stock in any of the the markets that would be a safe investment. Even salvage value is questionable as who would want a factory that produces things that no one will buy? Take a look around Detroit, Gary, Pittsburgh and other former industrial boom towns. Deserts.
    • A Yahoo! User  •  8 mths ago
      Whoopie the great ponzi scheme is getting ready for another run-up. Just keep buying into the "hope & change" policies and you can take my analysis to the bank--oops, maybe not the bank
      • Trystam Bhale 8 mths ago
        Go stock up on supplies and live on the mountains then. Go back when all is clear and when your favorite Republican/teabagging whackos got elected if ever they get a chance to start their new country.
    • Frank N. Blunt  •  8 mths ago
      The shareholder economy is a scam, merely an illusion of economic viability that obscures the debt-ridden operations and overcompensation even more than actual production. Just as worse as the unjust support that politicronies and kleptocrats provided to the conniving perps and pseudo-patriots promoting the fraud of securitization and commoditization (as well as ensure their own wealth and self-interests are secured by literally giving away the national Treasury), "equity" markets have become exploited and abused as they have been propped up by the so-called stimulus, periodic bail outs, and other unjust forms of support. Appeasing the deluded people "investing" in them, including the Federal and public pension funds, as well as the perps and the pseudo-patriots pushing them just to drain more wealth from other citizens as well as possible operating capital for their resepctive businesses by manipulation and obtaining additional compensation (boards of directors are consistently biased and appeasing as all the other shareholders haven't that much say in those matters). The growth suggested by the ScAmerican shareholder economy is an illusion exhibiting the chracteristics of a tiered-pyramid scheme as well ... except that, courtesy of corruption and abusing rule of law, it now has a refill directly from the Treasury. Many are misinformed or not privy to actual conditions but exposed to propaganda especially about the actual problems and their causes. For the longest time their was ignorance about the supposed foreign oil sources providing to the USA when the western hemisphere nations, such as Canada and Mexico, where the greatest suppliers. Another example is the holders of Federal debt, as those in state and other public pension funds are rather large holders; they have become opaque and autonomous in their operations while socializing the risk. This is not only exploitation but another injustice creating greater socio-economic disparity as well as creating troubling conditions for representative government, providing civic services, and upholding the public trust. Beside all the government fraud, waste, and abuse the socio-economic matters will get worse as social institutions, like medicine and education, are sold out by kleptocrats that allow them to be further exploited by their cronies, corporateers, and the other pseudo-patriots instead of serving the public good.
      • Aik 8 mths ago
        Simply put, this wicked system of things IS BROKEN and is ever closer to being replaced by THE KINGDOM (government) OF THE HEAVENS. It's the government God's son related to his followers during his 3and 1/2 year ministry. I can't wait! You know, the government that members of false religion pray for but don't know they're praying for it. See Matthew 6:1-21.
    • PETERM  •  8 mths ago
      We are in a depression and this depression is the worst depression the world has ever had as this is the only time in history the U.S. has had a national debt of 14.55 trillion dollars that it owes to others and doesn't have the money to pay those to whom the money is owed and will continuously have to pass a new budget every time payments are due. The U.S. can't continue to print money without anything backing the money and if this continues the U.S. will default on all payments to other nations, businesses and individuals. The U.S. is more in debt than Greece but this debt is being covered up by using Greece as an example of how not to balance the budget of a country while asking the European Union and especially Germany for a bailout. There is no country to bail out the U.S. and 14.55 trillion dollars is an astronomical amount of money (14.55 thousand billion dollars) and it can never be paid because every man woman and child in the U.S. would have to pay 43,500 dollars each to pay the money that is owned to others and that isn't possible. We are soon to be headed for the worst and longest lasting depression the world has ever had to experience and we have one person to thank for that. George W. Bush who declared war on Iraq and the rest is history.
      • James 8 mths ago
        Deficit spending started well before any Bush.
      • Aik 8 mths ago
        Yes, it started thousands of years ago and is about to come to a head, so to speak. Man has dominated man to great injury. Man cannot fix the mess he has created along with the leader of this twisted, wicked system of things. Read who is in charge at Matthew 4:1-10 and Luke 4:1-13. You can't serve 2 masters. See Matthew 6:24.
      • Jack K 8 mths ago
        I noticed you did not state THE SUB-PRIME LENDING ACT,THE REPEAL OF THE GLASS STEGALL ACT,NAFTA,STIMULUS, or the $1.4 trillion a year deficit Obama has been running, FANNIE/FREDDIE, NLRB,EPA,BARNIE FRANK/CHRIS DODD, CHARLIE RANGLE ,ACORN,SEIU,PUBLIC UNIONS, AUTOWORKERS,GM,GE. So the Iraq war which is not even half of our war costs over their caused all of this and those other things I stated had no effect??? Interesting the logic you use what little there is!
    • Bill  •  8 mths ago
      And the wealthy parasites who are sitting on tons of unused cash will buy buy buy.....parasitism remains malignant.
    • Jack K  •  8 mths ago
      Well I will tell you how I feel about it, I am no analyst, I am no investor, so I know very little. Almost all signals, close to 85% of them say stocks will go lower. If you look at all the data, worldwide and in the U.S. it is for the most part negative, until we get a new direction and we have not been getting it. The world looks at the U.S. for a lead and what they are seeing in us is nothing but negative numbers,unemployment,foreclosure,deficits,spending, job losses, job hiring, bank failures,lending, credit ratings, loans, credit scores to get loans, long term unemployed, food stamps, amount considered poor, and on and on. Now we could talk about whose fault it is but it does not matter anymore, all that matters is what we are doing is not working so try something new and change directions. The stock market is just a reflection of everything else. I say It will get worse in the long run over the next few months because we are seeing no change and it is politics as usual, sure we may have swings up and down but overall treed will be down. Actually, it should be alot lower but the markets are just catching up with the phony money the feds are floating everything with!!! How far down depends on if all they have done wrong catch up with them before any good comes, I believe it will catch them or maybe they have another short term stimulus and it gets them through the election.
    • MICHAEL  •  8 mths ago
      Blaming Bush was easy, until Obama came along and made matters worse with his spending spree and anti-business agenda. Sure Bush's defecits due to the wars was bad. Educate me how Obama has improved that at all. He hasn't in almost three years. In fact, he increased troops in Afghanistan and started a new war in Lybia.

      Yes, you can make a good argument that we got on the wrong fiscal track with Bush. But it's even easier to make an argument that Obama continued down the wrong track and made things worse with his maybe not wrong but certainly untimely social and environmental agendas adding regulations and cost to big employers. It's like he hates their very existence. So they will go elsewhere.

      Why is manufacturing dying in USA? As a CPA I know why and it doesn't get fully explained most of the time. Sales, material product cost, labor, facilities, energy, administrative and taxes on profit. Most Dems seem to be upset that higher labor and taxes shift jobs overseas. Duh. What goes most unsaid is how energy costs are killing manufacturing. An energy policy that would keep costs down would reinvigorate manufacturing, particularly electronics and heavy manufacturing like steel and raw materials conversion. But Obama wants to do the opposite and increase electricity cost significantly with his idealistic solar and wind energy initiatives. He increased labor cost by increasing minumum wage, and health care benefits cost. He constantly threatens to increase corporate tax. Is it any wonder why businesses are not expanding? They're in the trenches with Obama manning the machine gun at their heads, especially CEOs that fly in a private airplane.

      I don't think Obama can be this stupid to do all this by accident. He is wrecking the economy and raising the defecit on purpose. Stupid or destructive, take your pick.
    • RexTrade  •  8 mths ago
      DOW 10,000
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