As predicted in Adam Hamilton’s article from early October ‘US Stocks And Commodities Are Seriously Oversold’ and our late-September article ‘Stocks likely to rally after IMF/World Bank meeting’, global markets have rallied hard in recent weeks. Since October 4th the Dow is up 10.8%, the FSTE is up 11.0% and the DAX is up a healthy 14.5%. The Aussie market has lagged somewhat but it has still bounced off its early October lows, with the All Ords rising almost 7% over the past three weeks. Friday’s surge in US and European markets is sure to add to this tally – the Dow was up 2.3%, the FTSE climbed 1.9% and the Dax soared 3.6%.

Nevertheless, high levels of risk still remain in several key industries and brokers continue to place buys on a range of Aussie blue chips.

With banks reporting this week financials are firmly in the spotlight and brokers don’t like what they see. Macquarie – which reports its first-half results on Friday – has been downgraded by no fewer than three brokers over the past week. Citigroup downgraded its earnings forecasts, Merrill Lynch predicts a 17% plunge in net profits this year (taking MAP dividends out of the equation) and Think Technically’s Mark Lennox says that Macquarie is doing it tough with M&A activity way down from last year. ‘Macquarie could face continuing headwinds if global negative sentiment surrounding investment banks is sustained for any lengthy period,’ he says.

Down 25% in the past three months, 36% over the past six months and 72% over the past five years, the investment bank that previously made its directors rich via its soaring share price appears to have lost its sheen. Deal flow has dried up, cash cows have gone out to pasture and investors are running for the door. 

The bank once known as the millionaires’ factory is not the only financial stock on brokers’ hit lists. Citi has reduced estimates ahead of NAB’s full year results on Thursday, while JP Morgan has CBA listed as Underweight and has reduced its price target on Australia’s largest bank.   

Meanwhile several brokers believe that Cochlear’s woes have only just begun. UBS thinks that dividends may be pressured and has a sell on the hearing implant manufacturer, Citi was surprised by management’s announcement that recall costs for defective implants would come in $30-50 million above Citi’s $100m estimate, Deutsche has reduced its price target, and Think Technically has a firm sell on the company, saying that the company’s reputation is under scrutiny and it also has to contend with Sonova re-entering the US market.

Other notable downgrades and sells include Ten, which was downgraded by Macquarie; Iress Market Technology, which JP Morgan downgraded and significantly reduced it price target to $7.85; and Macmahon, which Shaw and Morningstar both list as a sell. Actually Morningstar has an ‘avoid’ on it, can’t be much clearer than that.

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