Which way is up? Merrill market watchers at odds over stocks

Posted 3:30PM on Monday 4th March 2002 ( 23 years ago )

NEW YORK - There's a bit of a dustup going on at Merrill Lynch & Co., where the firm's chief economist is out with very bullish comments about stocks while its chief investment strategist is bearish. Chief economist Bruce Steinberg, in a report issued Monday called, "Growth Is Back," raises his expectations for earnings growth this year and the expansion of the gross domestic product. Meanwhile, in a report also issued Monday, Richard Bernstein, chief strategist, is saying now is one of the worst times to be investing in stocks because of a major contrarian indicator -- strategists at other firms on Wall Street are just too bullish. According to Steinberg, "First-quarter growth should be even stronger than we anticipated because demand is coming back far more quickly than we expected." The first- and second-quarter GDP should rise at a rate of 3.5 percent, compared with his previous estimates of 2 percent for the first quarter and 3 percent for the second quarter, Steinberg said. "A stronger economy means stronger earnings," he added. "We expect earnings momentum to rise more than 20 percent year-over-year from the second quarter forward." Reflecting his confidence, Steinberg raised his expectations for Standard and Poor's operating earnings by $1 to $45 this year, which would be a 15 percent growth rate. He sees operating earnings of $55 in 2003, 22 percent higher than the projected 2002 figure. On the contrary, Bernstein says. "We continue to believe there is a disconnect between the actual profits recovery and the stock market's view of how strong and fast that recovery might be." Bernstein uses as his guide an indicator based on the stock allocations strategists at other firms are recommending. The indicator is now at 69.6 percent, its fifth most optimist reading in its 16-year history. Bernstein said that's practically a screaming sell signal because anything over 60.7 percent generates a signal to reduce positions and anything under 50 percent generates a buy signal. Who's right? It can't be said right now. Although what can be said is that the two reports indicate there is no party line at Merrill Lynch, where analysts appear to be free to tell it just as they see it.

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