Double-digit profits unlikely in '08: strategists

By Caroline Valetkevitch

NEW YORK (Reuters) - Hopes for double-digit earnings growth in 2008 have all but evaporated as the credit market turmoil is expected to exert more pressure on financial services companies.

Banks will book more write-downs in the fourth quarter and possibly in the first and second quarters as well, according to strategists who spoke at Reuters Investment Outlook 2008 Summit in New York this week.

Slowing economic growth also makes it unlikely for earnings to hit double-digit gains next year, they said, with economists and others forecasting that a recession is increasingly likely.

Bill Gross, chief investment officer of PIMCO, and manager of the world's largest bond fund, said double-digit forecasts for earnings next year are not realistic.

"Stocks are sort of in la-la land when they start to forecast a renewed double-digit profit gains in 2008. That's just not going to happen," Gross said. "We're already below the line, and with GDP growth targeted to 1 to 2 percent, it just doesn't produce profit growth of any kind."

The lackluster outlook for 2008 will be a blow to investor sentiment, particularly after four years of double-digit profit increases, according to analysts. The first quarter of this year was the first time earnings slid into the single-digit range as fallout from housing slump took its toll.

"The consensus is still looking for plus 14 percent in earnings next year," said Bob Doll, global chief equities investment officer of BlackRock Inc. "We don't see that possible in a subpar economic growth environment."

In a recent research note, Doll said: "We expect a plethora of earnings downgrades and disappointments, focused heavily in the financial and consumer discretionary sectors."  Continued...