INSUBCONTINENT EXCLUSIVE:
By Lu WangPrices bounce around, emotion obscures logic, signals appear and vanish
The reasons for treating equities as a poor barometer for the economy are many
Right now, that might be for the best.
Pools of gloom await anyone looking for a message in stocks
In wonkier circles, shrinking valuations and negative rolling returns have started to ring the recession bell
look at the carnage, add it all up, and announce that the market is wrong
close, with more than half its constituents nursing bear-market losses of 20 per cent of more
The Nasdaq 100 has fallen 13.9 per cent from its record close in August, while the Russell 2000 Index of small-cap stocks has lost 19 per
market is pricing in zero economic growth
strategist, employed a similar approach in assessing the future of corporate profits
The MSCI World All-Country Index is now pricing in a 1 per cent decline in earnings in 2019, below the 5 per cent increase that he and his
Since Bloomberg began tracking the data in 1992, the SP 500 at this time of year has stood at an average of 17.4 times income that ended up
materializing in the next year.
Assuming stocks are now valued at that average, it would equate to the market predicting $152.50 a share in
2019 earnings, not the $174.50 estimated by analysts
In other words, while Wall Street predicts 9 per cent profit growth for next year, the market could be said to see a 5 per cent
decline.
Sure, markets overshoot, and sentiment gets carried away
Corrections like this one have occurred six other times since the bull market began in 2009
They all sparked growth scares
Over the past two decades when stocks suffered two bear markets, professional forecasters have never once predicted a down year
Eighty-nine surveyed by Bloomberg generate an average prediction of 2.6 per cent growth in gross domestic product next year.
Meanwhile, a
2014 study by Prakash Loungani of the International Monetary Fund found that not one of 49 recessions suffered around the world in 2009 had
been predicted by the consensus of economists a year earlier
Loungani previously reported that only two of the 60 recessions of the 1990s had been anticipated a year in advance.
Threats to the economy
