Prepare for subprime fallout

As the crisis in the US subprime mortgage market deepens and spreads to other sectors, investors should brace themselves for further volatility. Jeremy Batstone analyses how financial stocks, bonds and the economy as a whole will be affected.

Strange, perhaps, to begin an article on the crisis in the US sub-prime mortgage lending market with a quick look at the outlook for US corporate earnings but the two are related as dogged readers will shortly discover.

Two weeks ago we pointed out that consensus year on year Q1 EPS growth was down to 4.1% from 12% over Q4 2006. In the wake of further corporate releases and downbeat outlook statements that 4.1% growth figure has morphed into just 3.9% year on year growth, a decline of 55% from 1st January.

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