The Aging Bull?

The current bull market recently celebrated its third birthday. The S&P 500 hit a closing low of 800.73 on March 11, 2003 (it had actually gone even lower in October 2002). Yuo know, there’s nothing like a war to get a stock market moving. We’re up over 63.2% since then.
But like any three-year-old, this market is starting to get cranky. The S&P 500 has now gone up for six straight days. With an hour left of trading, it looks like the market will close lower.
The WSJ reports that analysts have been trimming back their earnings forecasts:

At the start of January, analysts, on average, predicted first-quarter profits would grow 12.6% at companies in the Standard & Poor’s 500-stock index. By Friday, that forecast had been cut to 11%. “We have definitely seen a dramatic pull-down” in analysts’ forecasting patterns as the bull market has worn on, says Thomson Financial research analyst David Dropsey. “It seems like every quarter it gets a little more back to normal.” Normal isn’t necessarily great. Bull markets usually are strongest when they are young, right after a bear market. Investor expectations are low then, and surpassing them is easier. The bull market tends to end, or at least pause, when expectations get well ahead of companies’ ability to deliver.
The fact that analysts are cutting forecasts again doesn’t necessarily mean the bull market is in trouble. The amount of the estimate cuts still is below average. Thomson Financial has found analysts tend to cut forecasts by about three percentage points as a quarter wears on. Then companies have a way of beating the reduced expectations — by about three percentage points. Lately, the estimate cuts have been less than that.

Posted by on March 20th, 2006 at 2:57 pm


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