A notable signal emerged last week in Citigroup’s profit revision index: the number of analysts cutting U.S. corporate earnings forecasts for the first time in 23 weeks surpassed those raising them, ending the longest cycle of upward revisions since September 2021.
The mechanism matters more than the numbers themselves. Stock prices roughly equal earnings divided by the discount rate, and this round of pressure is coming from both ends at once. On the numerator side, earnings were lowered for consumer staples, discretionary, materials, and financials. Kemper from BNP Paribas Wealth Management pointed directly to rising cost of living and energy prices as the cause. On the denominator side, the Federal Reserve raised rates by 25 basis points this month (the first increase in three years) and signaled that there could be another hike later this year; meanwhile, the 10-year Treasury yield has already moved close to the key threshold of 4.5%.
Historically, when “earnings downgrades + higher rates” occur together, what often follows is valuation compression rather than an earnings collapse. Helen Jewell of BlackRock reminded that the market currently still expects U.S. corporate earnings to grow at a rate of 15% to 18%, and that figure alone leaves plenty of room for downward adjustment. Michael Wilson of Morgan Stanley issued a quantitative warning: if valuations keep slipping and energy prices push policy tightening further, the S&P 500 could fall by as much as 7%.
My view is clear: this looks more like the end of a valuation-expansion phase than the beginning of an earnings downturn. The truly dangerous variable isn’t the pen in analysts’ hands—it’s oil prices. Brent returning above $100 is precisely the direct catalyst for rekindling the tightening expectations.
Let me leave you with a question: if the 10-year U.S. Treasury yield really does move above 4.5%, which type of asset would you cut first—long-duration bonds, growth stocks, or crypto?
#WallStreet profit forecasts turn bearish for the first time in 23 weeks
The mechanism matters more than the numbers themselves. Stock prices roughly equal earnings divided by the discount rate, and this round of pressure is coming from both ends at once. On the numerator side, earnings were lowered for consumer staples, discretionary, materials, and financials. Kemper from BNP Paribas Wealth Management pointed directly to rising cost of living and energy prices as the cause. On the denominator side, the Federal Reserve raised rates by 25 basis points this month (the first increase in three years) and signaled that there could be another hike later this year; meanwhile, the 10-year Treasury yield has already moved close to the key threshold of 4.5%.
Historically, when “earnings downgrades + higher rates” occur together, what often follows is valuation compression rather than an earnings collapse. Helen Jewell of BlackRock reminded that the market currently still expects U.S. corporate earnings to grow at a rate of 15% to 18%, and that figure alone leaves plenty of room for downward adjustment. Michael Wilson of Morgan Stanley issued a quantitative warning: if valuations keep slipping and energy prices push policy tightening further, the S&P 500 could fall by as much as 7%.
My view is clear: this looks more like the end of a valuation-expansion phase than the beginning of an earnings downturn. The truly dangerous variable isn’t the pen in analysts’ hands—it’s oil prices. Brent returning above $100 is precisely the direct catalyst for rekindling the tightening expectations.
Let me leave you with a question: if the 10-year U.S. Treasury yield really does move above 4.5%, which type of asset would you cut first—long-duration bonds, growth stocks, or crypto?
#WallStreet profit forecasts turn bearish for the first time in 23 weeks