(Boursier.com) — The stock markets continued to rise on Monday, like the CAC40, which gained more than 1% and now shows nearly 700 points of gains compared to its low point on July 5. While few observers had anticipated such a jump, the teams at Morgan Stanley and Goldman Sachs say that the decline in earnings prospects is in contradiction with this hearty rebound in the indices. They say corporate profit margins will shrink next year amid continued cost pressures. According to Michael J. Wilson, strategist at MS quoted by ‘Bloomberg’, “the best part of the rally is over”.
“While end consumer prices continue to rise at a rapid rate, producer prices are rising twice as fast.” Analysts’ expectations for margin expansion through 2023 are “unrealistic due to ongoing cost pressures and declining demand,” the specialist said. While he thinks inflation has peaked and “will likely come down faster than the market currently expects,” that still doesn’t bode well for equity markets, as it will reduce operating leverage and will weigh on corporate profits. “We think it’s premature to give the green light just because inflation has peaked.”
Same story with David J.Kostin. The GS strategist says rising input costs will squeeze profit margins next year, though revenues will continue to grow, albeit at a slower pace. He now expects net margins to fall 25 basis points in 2023, with contraction across all sectors, led by materials, energy and healthcare.
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