Economist Yardeni: 'We Are Cutting Our 2015 and 2016 Earnings Estimates'

A combination of the soaring dollar, plunging oil prices and flattening yield curve has led ace investment strategist Edward Yardeni, president of Yardeni Research, to trim his earnings and stock market forecasts.

"We are cutting our 2015 and 2016 [S&P 500] earnings estimates by $5 each to $120 and $130 per share," he writes in a daily commentary provided to Moneynews. "In this scenario, earnings growth would be only 2.1 percent [for the S&P 500] this year. It would pick up to 8.3 percent next year."

As a result, Yardeni cut his year-end target for the S&P 500 to 2,150 from 2,300, which is now his target for mid-2016. The index stood at 2,028 Wednesday morning. His year-end target represents a 6 percent rise from that level.

"The drop in oil prices is cutting earnings for the S&P 500 energy sector," Yardeni, a former economist with the Federal Reserve Bank of New York, says. "So far, it hasn't been a zero-sum game. The other sectors haven't gained as much as energy has lost."

Then there's the soaring dollar, which lessens the value of companies' overseas revenue when it's converted into dollars. Meanwhile, "the flattening of the yield curve and onerous regulatory and legal expenses are hurting bank earnings," Yardeni writes.

However, he is still bullish. "We are still predicting earnings gains both this year and next year. Bear markets are caused by recessions, which cause earnings to fall. That's not our scenario for the next two years. In addition, we expect that the Fed will remain very patient when it comes to raising interest rates this year and maybe next year too."

He's not the only one trimming his earnings forecasts. Analysts now predict S&P 500 profits will register a 3.3 percent gain for the fourth quarter, compared with a 4.2 percent projection as of Jan. 1, according to Thomson Reuters, The Wall Street Journal reports.

"The two things everyone's wrestling with is lower oil and, for multinationals, what impact will a stronger dollar have on sales overseas," Joseph Amato, chief investment officer at Neuberger Berman, tells the paper.
 

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