Cripps says the sign he's waiting to see is a consensus of analysts looking 12 months ahead and seeing earnings rising - instead of falling - at companies making up the S&P 500 index. And he wants to see two consecutive months of rising earnings expectations. That would signal to portfolio managers that the economy is in the bottom phase and turning up, encouraging them to be fully invested, he says. The earnings outlook has had a great record of forecasting good and bad turns in the economy, Cripps says. The earnings expectations, for instance, switched from positive to negative for two months in a row in November and December of 2007, he says. The recession started that December. "That was a pretty good call," he says. So far, the expectation is for lower earnings a year from now, although last month's forecast wasn't as dim as it has been, Cripps says. That helped fuel the recent bump up in stock prices, he says.
Awaiting Signs Of Growth
Local Financial Experts Share Their Thoughts About How They'll Gauge An Economic Turnaround
Meg VanDeWeghe, director
Brown Advisory
"One statistic doesn't tell you a story. You have to look at trends over time," VanDeWeghe says.
She's watching trends in consumer confidence and the stock market. Consumer confidence inched up in March and rose higher than expected in April, she says. "What we will want to see is consumer confidence translating into consumer spending and investing before we really know we are in an upturn." A stock market rebound often precedes an economic turnaround by several months, she says. You need signs besides rising prices to know that the rally has staying power. She sees some signs now: More stocks are advancing than declining. The technology sector, which often leads a market upturn, is leading now. Stocks didn't retreat recently despite negative earnings reports and the swine flu scare. And the price of gold, the refuge of nervous investors, has fallen off. "I currently am more confident with the equity market than I have been in the past year and a half," she says.
Steven Bleiberg
Head of Legg Mason's
global asset allocation group
