Analysts don't usually tell investors to sell S&P 500 stocks. So when they do, it's wise to pay attention.
Wall Street analysts slapped their highest number of sell ratings on 10 S&P 500 stocks, including Principal Financial, T. Rowe Price and Lumen Technologies, says FactSet. Seeing sell ratings on stocks is highly rare, as nearly 54% of analyst ratings are now buys and 40% are holds.
But rising worries about the banking crisis are sparking volatility — as are warnings to dump stocks before it's too late. Now 6.2% of analysts' recommendations on stocks are a sell, slightly higher than the 6.0% average in the past five years.
"Analysts and companies have been more pessimistic in their earnings outlooks for the first quarter compared to historical averages," said John Butters of FactSet. "As a result, estimated earnings for the S&P 500 for the first quarter are lower today compared to expectations at the start of the quarter. The index is now expected to report its largest year-over-year decline in earnings since Q2 2020."
Bracing For A Tough Period For The S&P 500
What's sparking so much caution from the analysts? Fears are rising that corporate profits in the first quarter are looking weak.
S&P 500 earnings for the ongoing quarter ending in March are expected to fall 6.1%. If that prediction comes true, it would mark the biggest profit drop since the second quarter of 2020. It's also a massive deterioration in a short period of time. Just three months ago, analysts thought S&P 500 profit would only fall 0.3% in the first quarter.
Companies themselves aren't inspiring confidence either. Already this year, 83 companies issued negative earnings guidance, FactSet says, which is more than triple the number that issued positive outlooks.
And so analysts are getting much less bullish on the stocks, too. "The overall percentage of Buy ratings has declined over the past 13 months from a peak of 57.5% at the end of February 2022 to 53.5% today," Butters said. "At the sector level, ten of the eleven sectors have seen a decline in their percentage of Buy ratings since the February 2022 peak."
Analysts Sound Warning On Financial Stocks
The financial sector is turning into an area of concern for many analysts. Three of the 10 stocks with the most sell recommendations are in the financial sector.
Take Principal Financial as an example. More than half the ratings on the shares of the asset management company and insurer are sells, FactSet says. That's a higher percentage of sells than for any other S&P 500 stock.
Analysts don't like the fundamentals of the business. After dropping nearly 7% in 2022, the company's revenue is only seen inching up 2% this year, says S&P Global Market Intelligence. Additionally, the company's profit growth is constrained. Analysts think adjusted earnings will only rise less than 3% in 2023. Shares are already down 16.6% this year.
T. Rowe Price is another S&P 500 stock analysts are flagging investors away from.
Half of the ratings on the mutual fund company are sells. Shares are only down 0.8% so far, to 108.42. And analysts are braced for business to worsen considerably as the prices of mutual funds tumble. The company's profit is seen dropping by more than 15% this year, says S&P Global Market Intelligence. And as such, analysts think this stock will only be worth 96.38 a share in 12 months, or nearly 12% less than they are now.
It's unclear if the U.S. is headed into a recession. But analysts, it seems, already know which S&P 500 stocks to avoid.
Watch Out For These S&P 500 Stocks
Stocks with highest percentage of sell ratings
| Company | Symbol | Sell ratings | YTD % ch. | Sector |
|---|---|---|---|---|
| Principal Financial Group | 53% | -16.6% | Financials | |
| T. Rowe Price Group | 50% | -0.8% | Financials | |
| Lumen Technologies | 50% | -52.5% | Communication Services | |
| Robert Half International | 47% | -0.6% | Industrials | |
| Franklin Resources | 47% | -0.4% | Financials | |
| Clorox | 45% | 9.7% | Consumer Staples | |
| Paramount Global | 43% | 16.7% | Communication Services | |
| Consolidated Edison | 41% | 0.3% | Utilities | |
| Expeditors International of Washington | 40% | 2.4% | Industrials | |
| Snap-on | 36% | 1.4% | Industrials |
Sources: FactSet, IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
