Strategists Revise S&P; Earnings Forecast

Wall Street strategists at brokerage giants J.P. Morgan Securities Inc. and Credit Suisse First Boston Corp. now agree that profits of the Standard & Poor’s 500 companies will fare worse this year than previously thought. But they disagree as to whether that means investors should pile into stocks.

J.P. Morgan’s Douglas Cliggott, the most bearish major strategist on Wall Street, predicted Monday that S&P; 500 earnings will fall 22% this year, and the index will sink to 1,100 by year’s end. He previously forecast an 11% profit decline and a 1,200 year-end level for the index, which closed Monday at 1,204.

Thomas Galvin, Cliggott’s peer at CSFB, also lowered his S&P; earnings forecast and index target level Monday. Yet Galvin, Wall Street’s most bullish strategist, says an expected 20% earnings decline in the second quarter probably means the worst is past, and that stocks are likely to rally in advance of an economic recovery.

“With company pre-announcements [of earnings disappointments] having crested and the bar of expectations much reduced, the recovery in leading economic indicators clearly states that the worst of the profit and stock market days are behind us,” Galvin wrote in a note to clients Monday.

The S&P; 500 is likely to end this year at 1,450, Galvin said. That’s down from his previous estimate of 1,520. Even so, if he’s right, it would be a 20% gain from Monday’s close.

Galvin cited rising consumer sentiment and lower interest rates among signs the economy will revive before the year is out.

“This market won’t move in any sort of straight line,” Galvin said in an interview. Still, “the earnings picture, in my mind, clearly has bottomed in the second quarter and the [business] inventory problem, the major drag to earnings, will be behind us” by the end of the year.

Where Galvin sees a bottom, J.P. Morgan’s Cliggott sees more declines. “We see little hope of a sequential improvement in reported [per share earnings] in the last two quarters of the year,” Cliggott said.

Although 2002 should see improvement, the S&P; 500 still is likely to reach only 1,200 by Dec. 31, 2002, Cliggott said.