Even The Experts Don't Agree


An adage from the newspaper business can help make sense of today’s stock market: If the number of people calling to complain that you are too liberal is about equal to the number blasting you as too conservative, you’re providing balanced coverage.

Listen to the “experts,” and the market coverage appears balanced. Pundits are shouting as loudly as ever, but they have not moved en masse to support any single opinion.

In the following paragraphs, we check out three groups of market prognosticators — and how their actions affect your portfolio.

Investment-newsletter editors

As of Sept. 8, the percentage of bullish newsletters was 48.3%, down slightly from levels of more than 50% in the last two weeks but still above the average of 46% since 1989, according to Investors Intelligence. Bearishness fell to 23.6%, well below the long-run average of 32.5%.

The difference between bullish and bearish sentiment is 24.7%, down from a 17-month high of 31.8% two weeks ago but well above the average of 13.4% since 1989. Historically, periods when bulls outnumber bears by an extreme margin have been bad times to buy stocks.

Stock analysts

Analysts are optimistic, as usual. Per-share-profit estimates for members of the S&P 500 Index are rising, as shown in the chart below. In the 12 weeks ended Aug. 31, the average stock saw a 13% increase in the per-share-profit estimate for the next fiscal year. Average profit-estimate revisions for the next fiscal year haven’t been positive for a 12-week period since the period ended May 2007.

Such an improvement in sentiment should come as little surprise, considering analysts’ bullish tendencies. Based on the consensus for its constituent companies, profits for the S&P 500 Index are expected to grow at least 25% in 2010.


The August Blue Chip Economic Indicators consensus calls for U.S. gross domestic product (GDP) to increase at a 2.2% annualized rate in the September quarter from June-quarter levels, ending a four-quarter streak of economic contraction. For 2010, the economists expect GDP growth of 2.3% and corporate-profit growth of 8.5%, with both projections up sharply from the July consensus.

Economists tend to be more conservative than stock analysts. Some recovery in both the economy and corporate profits seems likely.

The last word

Opinions from all three groups discussed above bear watching, and investors can glean wisdom from their views. But many of you subscribe to Dow Theory Forecasts at least in part because you want us to help you navigate through the sea of opinions. So here’s the bottom line:

Newsletter sentiment suggests bullishness is high but not at extreme levels.

Analysts seem overly optimistic about 2010 profit growth. Profit estimates are rising from lows earlier this year, but the current consensus for next year looks aggressive. If growth does not measure up to consensus expectations, it could contribute to the correction we expect in coming months.

Economists’ projections make sense, yet even that modest growth is far from guaranteed. Consumers, the engine behind about two-thirds of the U.S. economy, remain under pressure.

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