S&P 500 Can’t See Enough Money to Feed Stocks’ Rally
April 6 (Bloomberg) -- Investors are depending on banks more than at any time in at least 60 years to lead the U.S. out of the longest earnings slump since the Great Depression. American companies will end more than two years of declining income by the fourth quarter, according to analyst forecasts compiled by Bloomberg. Banks will be responsible for all of the 76 percent rebound in the final three months of the year, because without financial companies, the gain turns into a 4.5 percent decline, the data show. Rathbone Brothers Plc, MFS Investment Management and TD Ameritrade Holding Corp. say the reliance on banks is making them increasingly concerned that the 25 percent gain by the Standard & Poor’s 500 Index since March 9, the steepest rally since 1938, will dissipate. While rising home sales and durable- goods orders show the economy may be bottoming, unemployment and consumer debt as well as prospects that banks will be forced to write down more loans may halt the gain in equities. “People should not get carried away,” said Julian Chillingworth, the London-based chief investment officer at Rathbone Brothers, which had more than $14.6 billion in assets under management at the end of last year. “We first need to see genuine signs of economic recovery.” The S&P 500 fell 1 percent to 833.99 as of 9:36 a.m. in New York after Mike Mayo, the New York-based analyst who left Deutsche Bank AG to join Calyon Securities, recommended selling banks because of his forecast that loan losses will exceed levels from the Great Depression. Profit Drought In 11 recessions since 1938, stocks have rebounded an average of five months before a recovery in earnings, according to data compiled by Bloomberg. The economy has contracted for 16 months, equaling the two longest slumps -- between 1973-1975 and 1981-1982 -- since the Great Depression. The earnings decline that has lasted for six straight quarters will get worse before it gets better, with profits at S&P 500 companies decreasing for three more periods, Bloomberg data show. Companies from Microsoft Corp. to DuPont Co. already said profits will be disappointing. Analysts predict banks, brokerages and insurers will earn about $21 billion in the last three months of 2009, compared with a loss of $65 billion a year earlier, according to estimates compiled by Bloomberg. http://www.bloomberg.com/apps/news?pid=20601087&sid=atxaGagbioZA&refer=home
