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The Ratings Game: Stocks still have an ‘unusually high’ number of buy ratings despite inflation, recession worries

Despite a flurry of macroeconomic pressures, Wall Street analysts still feel very bullish about the stocks they cover.

That’s according to FactSet’s senior earnings analyst, John Butters, who noted that the number of buy ratings on stocks remains “unusually high,” despite broader-market concerns about inflation, interest rate hikes, the war in Ukraine, falling stock prices and the potential for a recession.

Of the 10,000-plus ratings on S&P 500
SPX,
+2.49%

stocks, 56.9% are buy ratings, while only 5.4% are sell ratings, Butters wrote in a late Friday report. If the percentage of buy ratings stays above 56% through the end of June, it would mark the 15th straight month in which the percentage of buy ratings was above of that level.

On a historical basis, it’s fairly abnormal to see this degree of bullishness. Before the latest streak of buy ratings above 56%, the percentage of buys hadn’t been above 55% since September 2011, according to Butters. He said that the five-year average for buy ratings as a percentage of the overall total is 53.3%.

Meanwhile, the S&P 500 has dropped 21.0% this year, and has lost 11% over the past 12 months.

Butters commented that the “optimistic outlook” on stocks dovetails with the fact that earnings estimates for S&P 500 components have gone up in recent months for both calendar 2022 and calendar 2023.

Analysts have the greatest confidence in the information technology, energy, and communication services sectors, judging by their percentages of buy ratings at 65%, 64%, and 61%, respectively. The consumer staples sector has the lowest portion of buy ratings at 39%, as well as the highest percentage of hold ratings at 49%.

On a company-specific level, Signature Bank
SBNY,
+3.80%
,
Alexandria Real Estate Equities Inc.
ARE,
+1.47%
,
and Assurant Inc.
AIZ,
+1.31%

led the way with 100% bullish ratings. Alphabet Inc.
GOOGL,
+4.57%

GOOG,
+4.10%

is next with 98% buy ratings.

Analysts are most bearish on Pinnacle West Capital Corp.
PNW,
+1.52%
,
Consolidated Edison Inc.
ED,
+0.99%
,
and Clorox Co.
CLX,
+2.24%
,
per the FactSet analysis of buy, sell, and hold ratings. Pinnacle West has 67% sell ratings, while Con-Ed has 56% and Clorox has 53%.

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