Lowered Expectations
Analysts forecast more earnings growth next year even as economists predict the Fed will begin tapering its stimulus. The central bank will curb the monthly purchases to $70 billion from $85 billion in March, according to the median of 32 estimates compiled by Bloomberg. Projections for fourth-quarter expansion in gross domestic product fell to about 2 percent compared with an earlier prediction for 2.5 percent, data compiled by Bloomberg show.
Wall Street strategists say the S&P 500 will fall in the next two months, slipping 2.4 percent to 1,728 this year, according to the average of 19 estimates compiled by Bloomberg. This year’s rally has made stocks more expensive, with the index trading at 16.8 times reported earnings, compared with about 14.2 in January.
Growth Slows
Assurant, the insurer of foreclosed homes, has climbed 72 percent in 2013, extending the rally since the bull market started to 245 percent. Per-share profit the last two quarters exceeded analyst projections. Earnings growth at the New York- based company will slow to 1 percent next year and 5 percent in 2015, when sales contract, according to estimates compiled by Bloomberg.
Delta Air Lines Inc. has surged 127 percent in 2013 as the carrier probably boosted profit 70 percent, analyst estimates show. The Atlanta-based company’s growth rate will slow to 1 percent next year, according to projections. The stock’s 2013 gain is the fourth-best of S&P 500 companies.
Hess Corp.’s 52 percent rally left the shares trading at almost 27 times reported earnings, compared to 9.9 in January. Earnings for the New York-based company are forecast to contract 29 percent in the first three months of 2014 after a 17 percent expansion this quarter, according to analyst estimates compiled by Bloomberg.
“Clearly earnings growth has been slowing,” Walter Todd, chief investment officer at Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a Nov. 7 phone interview. He helps manage $950 million. “We’re going to have to navigate that slowdown in earnings and monetary policy things like tapering. By definition it’s going to be harder to keep going higher like this.”