Global cooling

4 February 2008 By Richard Beales Follow @richardbeales1

Analysts are playing catchup, marking down their corporate earnings forecasts weekly. That owes much to the possibility of a US recession something that hasn t historically been kind to global earnings. That doesn t bode well for stock prices, even after a 15% selloff.

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S&P 500 earnings are currently projected to fall 20.7% in the fourth quarter of 2007 compared with a year earlier, according to Reuters Estimates on February 4. A week earlier, the combination of actual results and analysts' estimates suggested a decline of 17.6%. On October 1, analysts expected fourth quarter earnings to rise by 11.5%. The biggest component of the earnings decline is expected to be the US financial sector, with earnings down 94%.

For 2008, analysts expect global and US earnings growth of 13% and 17% respectively over the year before, according to Citigroup strategists quoting IBES consensus estimates. The bank calculates that along with the average US recession, global earnings fall 31% and global stocks by 36%. The MSCI World Index has lost about 15% since its high last July.

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