Expectations for corporate earnings in the United States and Europe have not been fully adjusted to take into account the deteriorating economic outlook, according to investor Clutch, who warns that the earnings season can be disappointing.
Analysts predict that Wall Street S & P 500-listed companies will report annual profit growth of 6% in the second quarter, according to a study by data providers IBES and Refinitiv. Growth is projected to rise to 11% in the third quarter of this year.
Europe’s Stoxx600 stock index forecasts are even tighter, with analysts forecasting overall revenue growth of 22% in the second quarter. This is partly due to the heavy weight of energy companies. Growth is expected to rise to 29% in the third quarter.
Some investors are skeptical of these forecasts, pointing out the discrepancy between the progress that companies have led analysts to expect and the macroeconomic situation clouded by inflation and the surge in corporate research. And suggests that Europe is heading into recession.
Neil Biller, Chief Investment Officer of Asset Management Company Premier Milton Investors, said: Analyst estimates consensus added that “they appear to be in the cuckoo lands of the clouds.”
Grace Peters, Head of European Equity Strategy at JP Morgan’s Private Bank, added that as the recent earnings season begins, corporate management teams will probably “begin to admit” that business conditions are deteriorating. ..
Purchasing managers’ indexes, which tend to match executives’ answers to survey questions on topics such as volume and new orders and predict how analysts’ expectations will move, are pointing south. PMI for global manufacturing, created by JP Morgan and S & P Global The lowest price in 22 months in June..
“Usually, when business confidence declines, analysts downgrade. [earnings forecasts] Treberg Leesam, Head of Multi-Assets at Royal London Asset Management, said:
The FTSE AllWorld index of developed and emerging market shares has fallen by more than a fifth so far in 2022, the S & P 500 has fallen by the same amount, and the Stoxx 600 in Europe has fallen 16%. However, some investment strategists say the potential for a downgrade in earnings has not yet been fully priced on the stock market.
Oxford Economics strategists wrote in a research note that US equities are “most vulnerable to earnings disappointment.” “The margin is growing [and] Cost pressure is widespread, “they write.
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Emmanuel Cow, Head of European Equity Strategy at Barclays, said the STOXX 600 will currently have about 410 points if the bank’s forecasts of economic conditions progress and Russia cuts gas supplies in retaliation for Ukraine’s western support. It is expected to drop to about 380 points from.
“Europe will be in recession by the turn of the year,” said Kau, who predicts that the consensus of analysts’ forecasts for 2023 will gradually change from the current 5% profit growth rate to a 5% decline. ing.
“At face value, stocks are cheaper than they were six months ago,” Cau said. “But they are trading with too high earnings expectations. Ratings are misleading.”