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Analysts Turn Negative

Here’s a troubling sign for U.S. stocks: Equity analysts, the people who should know these companies best, are rapidly lowering their expectations for profits this quarter.

Analysts now expect fourth-quarter earnings to fall 0.5% from a year ago, according to Reuters Estimates. Just last week, analysts were expecting earnings to rise 1.5%, and on Oct. 1, when the quarter started, they expected an earnings increase of 11.5%.

One factor here is a rising level of concern about the U.S. economy overall.

However, a glance at analysts’ predictions by sector is interesting:

The vast majority of the earnings drop is expected to occur in financial stocks (a 44% drop) and basic materials (a 10% drop). Just a 2% fall is predicted for cyclical consumer, which showed far more weakness last quarter. All other sectors are expected to show growth, some of it quite strong: Healthcare earnings are expected to rise 12%, while technology profits could surge 25%.

So for now it’s a Jekyll and Hyde stock market. When earnings figures actually arrive, we’ll see if the good outshines the bad, or if the bad news spreads, weakening the strong sectors.

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