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July 30, 2001

Wall Street Faces Reality

It's about time. Wall Street's big guns finally admit they expect the S&P; 500 to perform miserably this year and next. One strategist, Doug Cliggott of J.P. Morgan Chase, went so far as to say that the S&P; will end this year lower than it began and will close out 2002 at about the level it's at right now. Cliggott made his name last year as the only strategist on Wall Street to correctly predict that the S&P; would end the year lower than where it began.

Though we think that the S&P; could fall even lower than the Cliggott's forecast, it is quite telling that the strategists for big-name firms such as J.P. Morgan Chase, UBS Warburg, and CSFB are cutting their original estimates for the S&P.;

All of the strategists cited economic weakeness in the US and overseas as reasons for the lowered estimates. Duh! We've been talking about this for months. US companies face stiff competition because of the strength of the US dollar and deteriorating foreign economies. Plus, companies struggled with high energy costs this year -- and despite falling energy prices recently, there are signs that they could bounce back up in the near future.

More importantly, the dismal economy has taken a huge bite out of company earnings. The future for earnings is cloudy at best and downright gloomy at worst. Most companies have not offered an outlook on expected earnings, and, of those that have, most say earnings will continue to fall.

If investors pay attention to the fact that three of Wall Street's top strategists have revised their original optimistic outlooks for the S&P;, beware of a stock selling stampede.


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