JPMorgan (NYSE: JPM) has lowered its U.S. economic targets for 2008. The firm lowered US GDP growth outlook to +0.9% from a prior +2.1%. This call implies that JP Morgan now sees its S&P 500 target at the end of 2008 at 1450, down from a prior 1590 target. The most significant downward earnings revisions are in technology and consumer discretionary spending sectors, while energy and healthcare have the best visibility.
S&P 500 EPS still looks down 5%-7% for the first half of the year but the second half of 2008 is expected to show a more modest single-digit to low-double digit recovery. We just noted a Reuters survey that noted a more flat Q1 and Q2 2008 EPS.
What is very curious here is how the growth in many models magically reappears in the second half of the year. That would make this recession a mere footnote in the history books. It might not even technically qualify as a recession because that would be defined by "two consecutive quarters of negative GDP." So far, rate cuts have yet to make a dent as the situation is still deteriorating. Rate cuts arguably take 2 quarters to really work their way into the system, but rates currently haven’t been able to help a stretched consumer that really doesn’t need more credit.
We’ll know starting in summer if these fears are unjustified or if we are still deteriorating. But this magic second half is still somewhat of a mystery.
Jon C. Ogg
March 10, 2008