Merrill Lynch Puts A Bullish Spin On A Bearish Year For Earnings

By John S. McClenahen The U.S. equity market has already factored a slowly growing U.S. economy into its earnings expectations for 2001. And as more data become available -- U.S. jobless claims, retail sales, and producer prices are due out this week -- the extent of the market's lowered earnings-per-share (EPS) expectations will become clearer. "We expect downward EPS revisions to continue in cyclical sectors such as technology, capital goods, consumer cyclicals, and basic materials," says the Salomon Smith Barney Inc. unit of Citigroup, New York. However, next year could look a whole lot better, suggests Bruce Steinberg, the often-bullish chief economist at Merrill Lynch & Co., New York. "Historically, the equity market has usually had a double-digit gain in the year following the initiation of a [Federal reserve interest] rate cutting campaign," he says. "If we're right and the Fed eases [short-term interest rates] again on Jan. 31, history suggests that the market will rise strongly from that point forward."

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