Markets and the economy are at a crossroads

Still, stock analysts on Wall Street continue to forecast gains in corporate profits and revenue as far as the eye can see. The consensus on Wall Street, based on IBES data from Refinitiv, is that U.S. companies will post higher profits and revenue every quarter in the first three months of 2024. That’s the furthest date on the radar of Wall Street.

Don’t take these rosy estimates too seriously.

“We’re clearly on the downside of the earnings cycle, but you don’t see that in Wall Street estimates, not yet,” said Richard Bernstein, former chief investment strategist at the former Merrill Lynch, who now leads his own company. , Richard Bernstein Advisors. “Eventually, you will.

“Wall Street analysts are neither the beginning nor the end of anything,” he continued. “They are always positioned in the middle. When you start getting “negative surprises” in corporate earnings – when many companies are falling short of expectations – analysts will first say it’s an aberration. Then, he said, they will en masse revise their projections downward.

Mr Bernstein expects to see more downgrades soon enough – and then, in the future, when earnings start to improve again, he says, Wall Street will be slow to recognize it. “Nobody will want to be the first to say it either,” he said.

Reports released over the next few weeks will be retrospective. They will describe business performance in the second quarter and reflect an economy that, by metrics like the unemployment rate, was still surprisingly strong.

The consensus on Wall Street on July 8 was that most companies were able to generate substantial profits on solid revenues. The average estimate for S&P 500 companies, according to Refinitiv, predicted:

Look a little closer, however, and you’ll see that energy companies were supposed to provide the bulk of those profits. High oil and gas prices have hurt consumers and most businesses, but they’re wonderful if you’re the chief executive of Halliburton or Exxon Mobil, which will report revenue next Friday.

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