Don’t bank on a rebound just yet

In rough times, optimists like to visualise a v-shaped chart, with a sharp drop followed by a rapid rebound. Earnings have certainly plunged in the last quarter - but can they recover so quickly?

In rough times, "optimists visualise a V-shaped chart", with a sharp drop followed by a rapid rebound, says Lex in the FT. Enter the profits forecasts for the S&P 500: Thomson Financial estimates that earnings slid by an annual 21% in the fourth quarter, but in the third quarter of this year earnings are expected to rise by 19%.

Yet another year of outsized earnings growth makes "V unlikely", as Lex puts it. The macroeconomic outlook grows darker by the day. The Fed cut its growth estimate to 1.6% for this year, highlighting downside risks to the outlook amid tightening credit and the ongoing slide in house prices; it was "about as bearish a forecast as we can see from the Fed", says InvestorsInsight.com's John Mauldin.

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