The data is worsening and sentiment is bad. Neither is likely to improve over the near term. This set of conditions certainly doesn't provide comfort for investors. If the bad news continues for several months, well into next year, should investors rule out the potential for stock prices to recover?
The case for stock prices moving lower into 2009 usually rests on two arguments. The first is that corporate earnings will fall sharply as the economy continues to slow. The second is that the labor market will continue to deteriorate, eventually sinking consumption further. Both may happen. Analysts have recently been quickly lowering their earnings growth estimates for next year. Earnings are expected to grow about 1 percent in the first quarter and about 5 percent in the second quarter. But analysts tend to be overly optimistic. If past patterns hold, estimated earnings growth will likely turn negative as these quarters approach.
“Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
- Warren Buffett
Read the complete article at Hussman Funds
The case for stock prices moving lower into 2009 usually rests on two arguments. The first is that corporate earnings will fall sharply as the economy continues to slow. The second is that the labor market will continue to deteriorate, eventually sinking consumption further. Both may happen. Analysts have recently been quickly lowering their earnings growth estimates for next year. Earnings are expected to grow about 1 percent in the first quarter and about 5 percent in the second quarter. But analysts tend to be overly optimistic. If past patterns hold, estimated earnings growth will likely turn negative as these quarters approach.
“Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
- Warren Buffett
Read the complete article at Hussman Funds
