Another "idiot" who added to the population of bears which increased the bravery of the bulls. -g-
biz.yahoo.com
-Mohan
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Monday December 1, 1:36 pm Eastern Time
U.S. to face earnings growth crunch - funds
By James Saft
LONDON, Dec 1 (Reuters) - Slowing economic growth and fallout from Asian deflation could provide a nasty shock for U.S. corporate earnings in coming months, according to analysts and fund managers.
''I think that it is the big risk people aren't paying enough attention to,'' Richard Medley, president of the Medley Investment Group told Reuters on Monday.
Financial markets have been riveted on Asian bankruptcies and devaluations, giving little thought to the U.S., where companies post double digit earnings growth with boring regularity, analysts said.
"It is unlikely to be boring for much longer," Medley said.
Gross domestic product growth in the U.S. will almost certainly slow substantially from the current 3.3 percent quarter on quarter, analysts said.
And a slowdown in Asia, which will likely try to earn its way out of the hole thorough exports to the U.S., can only make matters worse.
Peter Chambers, chief investment strategist at HSBC James Capel, believes that corporate earnings growth in the U.S. will face great difficulty in meeting the consensus forecast of 14 percent.
He thinks that U.S. investors could react badly to an end to the long-running bullish phase of corporate earnings growth, leading to a potential sell-off.
''We are expecting there to be a number of disappointments,'' said Mike Grimble, chief strategist at Norwich Union Investment Management.
''There is a risk of a broader market sell-off if it looks like that is going to spread.''
U.S. corporations are facing increasing pricing pressure, Grimble said, and a long period of low wage growth is coming to an end.
To be sure, the slowdown in Asia has lessened the risk of a U.S. interest rate hike and central bankers are sure to keep the system flush with liquidity, analysts said.
Medley said the Bank of Japan will continue to provide massive amounts of liquidity to the financial system, some of which will undoubtedly make its way into dollar assets.
The effect of earnings growth disappointments could be muted by continued flows of cash into the U.S. from Japan, according to Grimble.
Fallout from corporate earnings disappointments in the U.S. have generally been confined to the reporting company and its sector, according to David Currie, head of the U.S. desk at Edinburgh Fund Managers.
''I would be reluctant to be buying the big internationally exposed stocks at the moment,'' he said. Currie has been working on building up his portfolio of stocks with domestic exposure, especially retailers.
Chain stores could well benefit as cheap Asian imports give them more pricing power and increase sales.
Purchases of retailers have been at the expense of capital goods stocks, Currie said.
''If you are buying cyclicals you have got to feel comfortable that economic growth is going to continue.''
Medley said that the interplay of a U.S. GDP slowdown and Asian deflation could raise the spectre of protectionism, which would certainly have an effect on shares.
''If we do get the slowdown to two percent GDP we are going to get dramatic earnings growth drops as well as rises in unemployment and an increase in the trade deficit to $15-16 billion a month.''
The Democrats are only 12 seats shy of a majority in the run-up to 1998 congressional elections, he notes.
''Dick Gephardt is not going to let these things go unnoticed as we get into the spring. That will be the fundamental issue around which the unions and the Democrats organise the 1998 election campaign.'' |
