Industry execs expressed incredulity, and the Street rose up almost as one to smite him. Now, seven months later, with cold winds whipping through a winter of growing discontent, Joseph the Bear no longer sits alone in his cave. Fear of recession permeates the air as analysts revise their projections downward, dropping into the single digits for the semiconductor industry. An article in last month's New York Times focused on one factor that doesn't get much attention. The article points out that even as the stock market was sinking to its worst performance in a decade, many analysts were still telling their clients to buy.
Today there is virtually no such thing as a sell recommendation.
As one longtime mutual fund manager put it in the Times article, many of today's Street analysts are more like racetrack touts than sharp-penciled researchers. Because shifting economics in the brokerage business has pushed many researchers to put their firms' relationships with companies they follow ahead of investors, the Times article argues. These firms are competing intensely for stock underwritings, debt offerings, and other investment banking deals from corporations. In this world, the Times article continues, negative research reports can carry a big cost, not a benefit. The result is that the traditional role of analyst as adviser has been severely compromised.