The only ones in the corporate sector who aren’t running for the hills are the analysts who track and predict corporate profits.
This according to a recent New York Times article, which points out most top analysts haven’t changed their fiscal predictions for the second half of 2011 at all, despite the recent domino effect that ensued in the wake of an 11th hour debt-ceiling deal neither party truly believed in.
And yet this flies in direct contrast to almost every Fortune 500 forecast out there, including those of the biggest firms in the country’s corporate sector, which have every incentive to maintain an attitude of cautious optimism.
So the question becomes: What are these analysts seeing that others aren’t?
Well, for starters, a lot of analysts view September as a major back-t0-business-as-usual period, during which companies recover from the post-summer jetlag and ramp up their efforts to finish the year on a high note.
In addition, the current forecast for third-quarter fiscal growth has only dropped off slightly (from 17% to 15.6%) despite the extreme roller coaster ride stock prices have experienced for the past month or so.
The projected forecasts for 4th quarter growth have dropped off even less (only .6%, according to an aggregate of expert resources), which means hope still springs eternal in a big-picture sense.
And, of course, there’s the notion that if the economy continues to experience positive-albeit-stagnant growth, there’s absolutely no chance of a double-dip recession, at least not for another three fiscal quarters, which would take us well into 2012 (at the very least).
Still, major brokerages including J.P. Morgan and Goldman Sachs have downgraded their predictions for 3rd and 4th quarter growth, perhaps believing a safe estimate is better than a sorry one, especially if they can exceed investors’ expectation and restore a sense of optimism in the months to come.
Finally, it should be mentioned that most analysts take a reactive, rather than proactive, approach to forecasting. That is to say, they generally wait to see what major corporations are speculating in terms of future growth and adjust their forecasts accordingly. This is based on the philosophy that the market, not the consumer, regulates most major fluxes.
It also means if major corporations continue to lower their expectations in response to more bad news in the final quarter of 2011, these analysts may not remain as cautiously optimistic as they have been thus far.
Source: “On Wall St., a Big Split on Outlook,” by Nelson Schwartz, New York Times, 8/21/11.
