Investors have little faith in current earnings forecasts

ON EUROPE

Trygve Tøraasen, fund manager of the Thames River Capital European fund, explains why investors do not trust earnings forecasts.

By several measures, equity markets appear to be cheap. Dividend yields are higher than treasury yields, a situation that has historically been a strong buy signal for equities and yet markets have been drifting without much direction for a while, which indicates investors have little faith in current earnings forecasts. The consensus outlook for economic activity and, by extension corporate earnings, has seemingly deteriorated over the last few weeks. Several leading indicators have seen a weakening in the magnitude of positive readings and talks of a double-dip recession have resurface...