Features

NEW YORK — The phrasing varies but the message is the same: The big dreams of a stock market comeback as momentous as its collapse are faded and jaded now. Forget them. Get real. 

The message may be the recognition of reality by that dwindling bunch of financial analysts who had been holding out hope.  

One by one they’ve conceded defeat, reluctantly, because to do so means “we were wrong.” 

The Federal Reserve began lowering interest rates in January, and the dreamers saw a recovery in the first quarter. The second quarter brought more reports of earnings losses. And the third quarter seems likely to as well. 

You might for a while be able to deny earnings as the basis for stock prices – why, prices of stocks soared on no earnings at all in 1999 – but you can’t do so forever. And with third-quarter earnings likely to be weak, forever is closing in on the dreamers. 

In fact, one view developing now has corporate chiefs becoming more interested this year in cleaning house than showing big profits.  

More concerned with lowering inventories, closing plants and reducing work forces. 

Ed Yardeni, chief investment strategist of Deutsche Bank, goes so far as to express the belief some chiefs “are also cutting their operating earnings as much as possible so their comparisons will improve next year.” 

Gerald Perritt, a realist and editor of The Mutual Fund Letter, says “one by one the optimists are throwing in the towel,” finally recognizing that the sharp rebound they forecast in January may not come by December. 

In fact, Perritt reminds investors, “many of America’s industrial giants are telling Wall Street that they don’t see a turnaround in the earnings skid anytime this year.” 

Moreover, a smattering of technology and telecommunications companies are suggesting to analysts that they aren’t even sure their industries, still in retreat, are going to come roaring back next year. 

Perritt’s advice is to bite the bullet, sell stocks that are built on a dream and use the proceeds to invest in funds that are packed with so-called value stocks.  

“Value is back in vogue.” 

Anthony Maramarco of “The Babson Staff Letter,” agrees.  

In fact, he observes, the resurgence in the value sector began more than a year ago, just as the tech-wreck began, scattering investors like a nest of ants. 

Value investing at the time didn’t offer the dreamy possibilities of technology stocks.  

But it offered a haven in companies with slow but real growth, low volatility, positive cash flow and maybe even dividends. 

Maramarco isn’t against growth-style investing, as opposed to value investing, but he does observe that each waxes and wanes, requiring diversification and regular rebalancing to best suit the times. 

And these could be the times again when terms such as “earnings” and “cash flow” aren’t viewed as old-fashioned, “old economy” terms, but logical, realistic investment expectations. As opposed to dreamy hopes. 

John Cunniff is a business analyst for The Associated Press