As this WSJ story reports, many on Wall Street believe earnings expectations for the second half of 2008 are too high. One such is Citigroup's Tobias Levkovich, who says earnings weakness in the second half of the year may surprise investors.
"We are not overly concerned with earnings expectations for the first quarter, where analysts and investors seem to anticipate the key areas of risk," he wrote in a note to clients. "We are more worried about the composition of earnings results for the second half of this year, possibly starting with the second-quarter earnings results."
Levkovich cites indicators arguing for weakening industrial activity: "Since industrial production has a strong correlation with S&P 500 [earnings] results, and inventory is already beginning to be trimmed, we suspect that earnings pressure outside of the financial sector is likely."