One of the reasons for the market's strong performance since the start of April is that earnings expectations heading into the month were too low. At the start of the month, analysts were looking for Q1 earnings to rise by less than four percent. As the month went on and company after company beat EPS forecasts, the analysts had to follow suit. Low expectations plus strong earnings equals fireworks to the upside, and that's exactly what investors got.
On a longer term perspective though, it appears as though the closer the S&P 500 gets to its old highs, the less likely analysts are to embrace this bull market. As the chart below illustrates, of the entire universe of US equities, analysts rate a lower percentage of those stocks as buys than at any other time over the last ten years.
I correlated the above chart of analyst's recommendation with the of 10-year Note.
It fits nicely. I guess they are collectively predicting a slowdown in earnings. One can infer a slow down in economic growth.See http://wrahal.blogspot.com/2007/04/analysts-pointing-to-slowdown.html
Posted by: Will Rahal | May 03, 2007 at 11:39 AM