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Mike
08-10-2004, 01:00 AM
Analysts suggest cutting back on stockshttp://www.twincities.com/images/common/spacer.gif
GAIL MARKSJARVIS
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Brace yourself. The stock market has been ugly and could get uglier in the weeks between now and the November election.

In an unusual move, Standard & Poor's market analysts warned Friday that investors would be wise to prepare for potential trouble ahead by cutting back the U.S. stocks and stock mutual funds they hold to just 40 percent of their overall investments. In addition, the market researchers suggested tucking away another 40 percent into the safest of all investments — cash.

It's a conservative approach. By comparison, a year ago, S&P's investment policy group suggested holding 65 percent in stocks — a more typical approach to investing. The last time S&P suggested only 50 percent in stocks was 1997.

Friday's warning was the second time in three weeks in which S&P's analysts warned investors to be careful. On July 22, they suggested cutting U.S. stocks back to 45 percent of an overall investment portfolio.

Besides the 40 percent allocation in U.S. stocks, S&P recommends keeping 10 percent invested in foreign stocks — a more modest portion than February's 15 percent.

"Foreign stocks should hold up a little better than U.S. stocks," says Joseph Lisanti, who sits on S&P's investment policy committee. "Foreign stocks are not being tugged down by an upcoming election or by the impact of high oil prices."

"Foreign countries sip oil, while we gulp it," he notes. "You don't find a lot of SUVs in Europe."

The Dow fell about 148 points Friday when oil climbed to more than $44 a barrel, and an anemic employment report suggested the economy could remain much weaker than expected.

Soaring energy costs and weak employment growth, combined with terrorism fears and slowing corporate profits, sent the market to its lowest point in 2004 — a loss of about 6 percent for the year. On Monday, the market couldn't climb back up.

Recommendations such as the one issued by S&P are meant to guide investors' outlooks rather than being adopted literally. Individuals must decide how much risk they dare take.

For example, people who will need to draw money from stock investments within the next few months for living expenses, college tuition, a down payment for a home, or any near-term purchase should not risk it in stocks.

Yet, investors with years to go until retirement do not have to be conservative with 401(k) plans and other retirement savings if they can stomach a shock.

Peter Anderson, a former chief investment officer for American Express said Monday that people who have years to invest until retiring can simply hold patiently onto investments now.

"If they stay the course, they will probably be better off in three to four months," he says.

But there are no guarantees. If investors will be shaken by more declines in the market, they should cut back on stocks now, says Anderson. In four to eight weeks, he thinks, it will probably be too late to act. He assumes stocks will have fallen further by then and will be positioned to climb modestly late in the year or next year.

Likewise, Matthew Pugsley of BCA Research in Montreal said in a report Monday, "We caution against getting bearish as stock prices fall. It is impossible to know where the bottom will be, only that the conditions for a bear market don't exist."

In a bear market, stocks fall about 20 percent or more and stay down for months. The current situation is regarded as temporary jitters likely to persist until after the election.

Investors are worried about a terrorism attack before the election and about the outcome of the election itself. In addition, Wall Street is feeling shaken as economic growth is more muted than expected.

Analysts are curbing their enthusiasm, and that means recalculating what stocks should be worth if the economy grows only 2.5 percent, rather than 4 percent, says Anderson. Because analysts expected more robust growth than seems likely, the market will have to adjust before stocks can climb again.

Economic reports on Friday hit investors like a wet towel. Economists had expected the nation's payrolls to increase by 250,000; instead only 32,000 jobs materialized in July. In addition, hourly earnings declined.

If the trend continues, consumers won't be positioned to make purchases as aggressively as investors anticipated, and that could crimp corporate profits. Not only are job prospects and pay disappointing, but higher oil prices also will act like a higher tax on both consumers and businesses.

The oil shock is not as bad as the 1980s, when high oil prices pushed the economy into a recession, says S&P economist David Wyss. But the impact is significant nevertheless.

At today's prices, S&P figures Americans are spending about $36 billion more on oil than they would have before prices shot up about $5 a barrel.

Households are spending about 4.8 percent of their disposable incomes on oil, still far below the 8.1 percent of 1980. But Wyss figures that a $10 increase in oil prices will result in a 0.25 percent decrease in the economy's growth for the year.

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This story was taken from the St. Paul Pioneer Press' online site (twincities.com).

Rod
08-10-2004, 07:41 AM
What do analysts know, heh?:P

Bullitt
10-31-2008, 06:29 PM
Yeah, I'm not a fan of analysts, but so far they haven't done a bad job with this quarter. Seems that most bears continue to insist that earnings estimates are too high though.

Obviously, with the benefit of hindsight they couldn't have been more wrong in 2004. Funny thing too is that after reading the first article of this thead from '04, it sounds like it was written yesterday.

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3Q 2008 S&P Earnings so far according to Bloomberg.com

Q3/08

Positive Surprises: 218/358 = 60.9%
0% Surprises: 38/358 = 10.6%
Negative Surprises: 102/358 = 28.5%

Q3/08 Earnings Estimated Growth: -12.5%; Ex-Financial: 12.0%