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Citi’s chief global equity strategist, Robert Buckland, has warned today that analysts are “too bullish” on stocks. The sell-side is at “peak bullishness,” which has triggered a red flag in Citi’s Bear Market Checklist.
This tool measures global buys against sells and is back to peak bullishness.
“US analysts are usually the most bullish but have been overtaken by their EM peers over the past 18 months. Analysts in Europe and Japan have also been increasing their net buy recommendations, although from a lower base. Overall, there is not much divergence in view across the world,” Buckland wrote in a client note.
Analysts have a tendency to be late with recognizing the bear market, notes Buckland.
“Instead of turning cautious, they turn even more bullish. Even though they are starting to revise down earnings forecasts, falling share prices and cheapening valuations keep them positive. They do eventually turn more cautious as earnings forecasts fall further, but it is a slow process. It feels like we might be at that point right now,” the strategist added.
At the moment, it seems that sell-side analysts are staying bullish despite falling share price and earnings estimate cuts. What follows is cuts to recommendations, which is “a point of calculation.”
“With prices falling further than EPS downgrades, PE multiples are contracting. Surely the bad news is already priced in? History suggests that investors should be wary of following this logic,” Buckland concluded.
