Bank of America Merrill Lynch Cuts S&P 500 2012 EPS Outlook to $102 From $103.50

Analysts at Bank of America Merrill Lynch have cut their estimates on S&P 500 earnings, citing weakness in energy stocks as reasoning for the cut. The analysts have cut 2012 EPS estimates from $103.50 to $102 for 2012 and have cut 2013 EPS estimates to $109 from $110.50.

The analysts cite lower energy earnings as reasoning for the cuts. However, the analysts also state that technology earnings could be stronger than expected, buoyed by strong results from computer and peripherals companies, mainly Apple AAPL. "The lower Energy earnings forecasts primarily reflect the drop in oil prices, while the increases in our Tech forecasts are generally the result of strong momentum for Computers & Peripherals companies, namely Apple. Excluding Computers & Peripherals, we modestly lowered our earnings forecasts for Tech along with the rest of the global cyclical sectors (Industrials, Materials, Energy)."

Lastly, the analysts give a bull/bear case for the S&P 500. "In the bull case, we assume a macro environment more in line with the economic consensus forecasts, which call for modest acceleration of GDP growth in 2013 and declining unemployment. In the bear case, we assume a global recession in 2013. We would expect 12% upside to our 2013 EPS forecast under the bull scenario, implying EPS of $122. This is less than 4% above the current consensus estimate and is another reason that expectations appear too optimistic for next year. Under our bear scenario, we would expect EPS of $80 (27% downside to our 2013 EPS forecast), with the greatest earnings downside for Financials, Energy, Materials and Industrials. Meanwhile, Tech offers a relatively strong risk-reward relationship, with the least downside of the cyclical sectors under the bear scenario and the third-most upside potential under the bull scenario."