S&P Equity Research believes 2008 is likely to be a tale of four quarters, with poor economic and earnings outlooks limiting P/E expansion early and late in the year. If economic growth accelerates in the second and third quarters, as we expect, we see performance improving.
Specifically, we think early 2008 U.S. equity performance is likely to be mediocre due to weakness in the residential housing market, tighter lending standards, high oil prices, and worries about the Federal Reserve's ability to stimulate the U.S. economy. But attractive valuations should help improve performances in the second and third quarters, in our view.
