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The lowering of earnings forecasts is causing concern on Wall Street, which is wavering.


Investors are increasingly anticipating a slowdown in the US economy next year. The US Federal Reserve raised interest rates by three-quarters of a percentage point for the third straight time on Wednesday in its fight against inflation, and some analysts believe the aggressive hikes could tip the economy into recession.

Some analysts believe that these aggressive hikes could tip the economy into recession. Against this backdrop, concerns about earnings are growing as companies face higher inflation and a possible weakening of demand.

Last Monday, Ford Motor warned that supplier costs linked to inflation would exceed forecasts for the current quarter by about $1 billion, while FedEx Corp on Thursday announced cost reductions of up to $2.7 billion. dollars after falling demand hit first-quarter earnings.

The announcements are “very important, especially if there is a series of future warnings,” said Quincy Krosby, head of global strategy at LPL Financial Charlotte, North Carolina.

“The market is most concerned about slowing US demand and slowing global demand,” she added.

Analysts have cut their S&P 500 earnings estimates for the third and fourth quarters, as well as the full year of 2022.

For the third quarter, analysts expect overall S&P 500 earnings to have risen just 4.6% from a year earlier, compared to 11.1% growth expected in early July, while they see full-year 2022 earnings rising 7.7% from 9.5% seen on July 1, according to IBES data from Refinitiv as of Friday.

“Really until maybe a month or two ago we didn’t see a lot of earnings downgrades. That’s changing now, and it’s a catch-up,” said Paul Nolte, portfolio manager at Kingsview Investment. Management Chicago. “There are more fallouts, and they are expected.”

Third-quarter results begin rolling in mid-October, marking one of the next big events for equity investors.

Upbeat corporate earnings had helped support the rebound in US equities over the summer.

But the respite seems to be over. On Friday, the Dow Jones Industrial Average dipped below its June low to its lowest level since November 2020, narrowly missing a close more than 20% below its all-time high on January 4, 36 799.64 points.

This would have confirmed a bear market that started from January 4, according to a conventional definition. The Dow is the only one of the three major indices not to have bear market status. The S&P 500 is down 23% for the year so far, while the Nasdaq is down 31%. Both are also close to the lows reached in June.

Rick Meckler, a partner at Cherry Lane Investments, a family-owned investment office in New Vernon, New Jersey, said US companies tend to surprise Wall Street with bigger-than-expected profits.

“Companies have shown an ability to navigate these kinds of situations before,” he said. “There will be a surprise as to the ability of earnings to hold up.”

Businesses are hit with a wide range of issues right now. In addition to inflation and rising rates, there is Russia’s invasion of Ukraine.

“Right now, as an investor, you’re hit from all sides,” Meckler said. Earnings estimates “are being reduced at the same time as the multiple is being reduced, and that’s part of what’s causing such a big sell-off.”

The S&P 500’s 12-month price-to-earnings ratio is now 16.3, down from 22 at the end of December and close to its long-term average of around 16, according to Refinitiv data.



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