Despite consensus opinion among many pundit classes in the market, some new data
discovered suggests otherwise.
The issue is analysts’ forecasts on the earnings of individual companies, which investors and stock commentators have junked. However, the analysts have not budged from their
position and are convinced that their estimates will bear out.
What’s More?
As per Bloomberg intelligence, the 2022 earnings forecast have been upped by analysts over the past month. They predict that S&P 500 companies will see a growth of 10.6% in their profits, up from 10 % last month and 8.7% at the beginning of the year.
The estimated dispersion indicator has remained stable even after S&P 500 has sold enough to take it into a bear market, as per Credit Suisse. Instead of loosening, the dispersion has become tighter in none out of eleven sectors in the S&P 500.
Senior Equity Strategist and Co-Head of quantitative research Patrick Palfrey said despite
people calling decline in profits. They are not seeing it. The sell-off in the marketplace is
assumed as a crisis in corporate profit and the economy, but the strategists are not seeing this
in the fundamentals of the companies.
The bond market on Thursday saw recession worries in the front and center. Treasuries
rallied after weak economic data came in weaker than expected. The 10-year yield fell by
3% after spiking 3.49 % nine days ago, raising doubts about whether corporate Americans
can deliver the big earning numbers.
A string of economic data points has been weak over the past few weeks, but according to
Palfrey, they overlook several positive factors. One is that inflation benefits companies and
the economy is de-accelerating from a high economic base. Even the GDP, which was way
above the trend is now moving along the trend.
Plenty of things depend on how the economy pans out. Federal Reserve has been tightening monetary policy at too fast a rate that it threatens to destroy corporate profits and squeeze out the growth.
Morgan Stanley’s strategists have warned that companies are slow in guiding down
predicting investor's comeuppance in the second-quarter earnings season.
One of the strategists to lower earnings estimates is Ed Yardeni of Yardeni Associates who
lowered the S&P 500 earnings for this year and the following year.
So far, this plunge in the market this year has left the stock prices well below the analyst’s
projection for S&P 500. The S&P 500 was trading last week at 25% below the informal price target set by analysts, making it one of the largest divergences since the early 2000s.
According to Keith Parker of UBS, earning forecasts are achievable despite downside
risks. He sees slow economic growth and no recession and projects S&P 500 earnings per share to be $235.5 for 2022 and $250 for 2023. Excluding energy and financial services, the projections will slow down from 8% to 4% next year.
