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TESS VIGELAND: Stocks pushed higher for the second day in a row today. The gains come amid much gloom on Wall Street. The Standard & Poor’s index of the nation’s largest 500 companies is already off 3 percent for the year. But today, stock analysts predicted that those same companies would show double-digit profit growth in ’08. Who’s right? Here’s our New York Bureau Chief Jill Barshay.
JILL BARSHAY: On Wall Street, analysts and investors are kind of like farmers and cowboys. They just can’t be friends.
Michael Thompson is director of research at Thomson Financial. He tracks thousands of stock analysts and their forecasts for all 500 stocks of the S&P. He says stock analysts are expecting corporate profits to rise 16 percent this year.
MICHAEL THOMPSON: Overseas, there’s been tremendous economic growth. Companies have just gotten far more efficient. There’s also been put in place over the last several years practices which have really taken companies to a new level of competitive agility.
If the analysts are right, investors should be bidding stocks up, up, up. They’re not. Thompson says investors are trading on emotions rather than company fundamentals.
Al Goldman scoffs at that idea. He’s the chief market strategist at AG Edwards. Goldman says the market is dominated by professional investors who know what they’re doing.
AL GOLDMAN: So I think the market is right, far more often than analysts are. I think the market is saying the risk of a recession is up.
Goldman says stock analysts aren’t aware of how much damage a recession will do.
Goldman: Sometimes you can’t see the forest for the trees. I think some people forget to look beyond the end of their noses and say, OK, I like this company, I like the management, I like their long-term plans. But what about the outlook for the whole economy?
One more thing to consider. Analysts may be projecting double-digit growth, but that doesn’t amount to much after most companies’ disappointing performance in 2007.
In New York, I’m Jill Barshay for Marketplace.
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