International investors expect the world economy will relapse into a recession, with more than one in three forecasting a global economic contraction within the next year, according to a Bloomberg Global Poll conducted Sept. 26. More than two in five said they're increasing holdings of cash, the largest proportion since the poll began asking that question in June 2010. A majority, 56 percent, say U.S. stocks entered a bear market.

S&P 500 profits fell an average of 12 percent on a yearly basis in the nine recessions since the 1950s, according to data compiled by Bloomberg. Should earnings drop by the same amount from the estimated $99.17 a share this year, profits will total $87.59 in 2012. Based on the S&P 500's Sept. 30 close of 1,131.42, that would imply a multiple of 12.9.
'Second Dip'

"We're diving into the second dip of a double-dip recession, so how promising is it that the earnings will hold?" Rob Arnott, chairman and founder of Research Affiliates LLC in Newport Beach, California, said in a telephone interview on Sept. 28. About $83 billion is managed using investment strategies developed by his firm.

"The measures by which stocks are cheap today rely on continued recovery and a continued surge in already peak earnings," Arnott said. "It relies on a very shaky foundation."

Economists project growth will accelerate to 2.2 percent in 2012 from 1.6 percent this year, according to a Bloomberg survey of 66 respondents. U.S. gross domestic product expanded at a 1.3 percent pace in the second quarter, according to a Commerce Department revision released Sept. 29.

Should S&P 500 earnings hold at $99 a share next year, stocks would be trading at a 30 percent discount to the average multiple since 1954, according to Bloomberg data. The index is priced at 12.3 times earnings in the last 12 months, down from a high of 23.9 in December 2009.
Train Wreck

Companies exceeded income forecasts in the last nine quarters after cutting costs and lowering debt. Reduced estimates mean corporations will have an easier time extending the streak, said Brian Jacobsen, chief portfolio strategist for the mutual-fund division at Wells Fargo Asset Management. Unlike 2008, when the bankruptcy by Lehman Brothers Holdings Inc. came as a shock, the market is anticipating a recession and the pessimism is overdone, he said.

"The current crisis seems almost like a train wreck that everybody is witnessing," Jacobsen, who is based in San Francisco, said in a telephone interview on Sept. 29. His firm oversees more than $400 billion. "That's one of the reasons why I think we'll avoid a train wreck. Policy makers know what the issues are. They just have to come to an agreement."

Twenty-two of the 31 analysts who follow JPMorgan slashed their 2012 earnings projections in the past four weeks, and none raised them, data compiled by Bloomberg show. The New York-based bank is trading at 5.71 times next year's earnings of $5.29 a share. That's 45 percent lower than the average multiple since 2004, according to data compiled by Bloomberg.
Caterpillar

The average profit estimate for Caterpillar, the largest maker of construction and mining equipment, fell by 36 cents to $8.86 a share in the past four weeks, according to a Bloomberg survey of 21 analysts. Shares of the Peoria, Illinois-based company are trading at 8.20 times 2012 earnings, 38 percent below the average valuation since 2005, Bloomberg data show.