The tide has turned on earnings calls. For the first time in months, analysts as a group are cutting rather than lifting profit estimates for Corporate America. That flip comes after 23 straight weeks of net upgrades, a streak that a Citigroup Inc. gauge indicates was the most durable since September 2021 and, by their count, the longest in half a decade.
The shift reflects growing unease that inflation and higher borrowing costs will pressure margins. Stephan Kemper of BNP Paribas Wealth Management Germany, where he serves as chief investment officer, said, "The main drivers of the weakness come from consumers, both staples and discretionaries, materials and financials," adding, "I think those revisions can be directly linked to a combination of higher living costs and rising energy prices."
Big picture, many on Wall Street still expect a strong full year for profits, but near term caution is rising. Morgan Stanley's Michael Wilson cautioned this week that the S&P 500 could slide up to 7% if valuations keep compressing and if additional energy price gains trigger tighter monetary policy. The OECD now projects that global inflation in 2027 will overshoot earlier expectations, implying a need for firmer policy. And earlier this month the Federal Reserve lifted US rates after a three-year hiatus in response to persistent price pressures.
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When profit expectations cool and policy looks tighter, stock moves can get choppier and leadership can change fast. If analysts keep trimming, it raises the bar for companies to impress, and it makes valuation swings matter more to day to day returns than usual.
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