Wall Street analysts are usually a pretty optimistic bunch. So, when they adamantly tell you to sell some S&P 500 stocks, that's saying something.
More analysts slapped more sell ratings on 10 stocks than any others in the S&P 500, including Pinnacle West Capital, Consolidated Edison and Franklin Resources, says data from FactSet. It's just the latest sign of increased caution on Wall Street following more than nine months of selling.
"Analysts have been more pessimistic in their revisions to earnings estimates for S&P 500 companies for the third quarter
compared to recent quarters, while companies have been slightly less pessimistic in their earnings outlooks for the third
quarter compared to recent quarters," says John Butters, earnings analyst at FactSet.
S&P 500 Analyst (Slowly) Get Cautious
Concern is only starting to creep in the opinions of analysts. Analysts slap a "sell" rating on just 5.7% of stocks, says John Butters of FactSet. That's actually less than the 6% of ratings that were sells on average in the past five years. But if you look closer, you see a bit of dimming of optimism. Less than 56% of stock ratings are now a buy, which is down slightly from the peak of 57.4% in February.
Why the concern? Seeing the S&P 500 drop nearly 20% this year doesn't help. Nor does the rising concern over the shape of corporate profit. Analysts are calling for S&P 500 profit to rise just 3.5% in the third quarter, Butters says. If that is the final number, it would mark the lowest quarterly growth rate since the third quarter of 2020.
Now you can see why some analysts might want to avoid some S&P 500 stocks.
More Than Half Analysts Say Sell Pinnacle West And Consolidated Edison
Sell ratings are rare. Even more rare are companies where more than half the ratings are a sell.
But that's the case at two S&P 500 utilities: Pinnacle West and Consolidated Edison. Parting with these companies is a tough call. They're one of just a handful of stocks actually up this year. Pinnacle West, which provides power mainly in Arizona, is up more than 4% this year on top of yielding 4.6%. And east coast power company Consolidated Edison is up even more, 14.4% this year, which is icing on top of a dividend yield of 3.2%, says S&P Global Market Intelligence.
And yet, analysts are coming as close as they come to banging the table for investors to get out. Sixty-three percent of analysts ratings on both stocks is a sell. Certainly, valuation has something to do with it. Consolidated now trades for nearly 22 times its earnings in the past 12 months. That pretty rich for a company only supposed to grow by 3% annually in the long term.
Downward Spiral? Sell The Asset Managers
When analysts turn bearish on utilities, it's a largely valuation call. But turning negative on giant companies that invest in stocks on investors' behalf, it's more of a tell on the markets.
More than 40% of the ratings on asset manager Franklin Resources and 38% on T. Rowe Price are sells. This is an important call because both companies' earnings fall when the market falls. Both take a cut of investor's portfolios, and when the portfolios lose value, the asset managers' income falls, too.
Shares of both asset managers, accordingly, suffered this year. Franklin is down 28% and T. Rowe Price shares are off more than 40%. And there are lasting fundamental reasons driving the fall. T. Rowe's adjusted profit is expected to fall by more than 30% this year. And its forecasted profit in 2026 of $10.68 a share is more than 16% below what the company earned in 2021.
Analysts aren't always right. But they're rarely this bearish, and you've been warned.
S&P 500 Stocks With Highest % Of Sell Ratings
| Company | Symbol | % of ratings "sell' | Stock YTD % ch. | Sector |
|---|---|---|---|---|
| Pinnacle West Capital | 63% | 4.2% | Utilities | |
| Consolidated Edison | 63 | 14.4 | Utilities | |
| Clorox | 50 | -18.6 | Consumer Staples | |
| Lumen Technologies | 46 | -30.0 | Communication Services | |
| Robert Half International | 43 | -31.4 | Industrials | |
| Franklin Resources | 42 | -28.2 | Financials | |
| T. Rowe Price | 38 | -44.5 | Financials | |
| Church & Dwight | 36 | -25.2 | Consumer Staples | |
| Snap-on | 36 | -1.3 | Industrials | |
| J. M. Smucker | 29 | 2.6 | Consumer Staples |
Sources: IBD, FactSet, S&P Global Market Intelligence
