Wall Street Profit Estimates Are Too Rosy

Corporate earnings forecasts are too optimistic, a growing chorus of analysts are warning, with the inevitable downgrades likely to put downside pressure on stocks and adding to concerns about a broader economic slowdown, inventory gluts, and weakening consumer spending intentions.Soaring inflation has followed a long run of ultra-loose monetary settings and unprecedented fiscal stimulus, driving the Fed to tighten financial conditions. Sharp rate hikes—along with expectations of more to come—have fueled speculation of a hard landing for the U.S. economy, with growing recession fears sparking a selloff in risk assets.
But while U.S. stocks have fallen into a bear market, Wall Street analysts remain remarkably bullish on corporate earnings.
‘Like Deer in Headlights’
Bloomberg Intelligence data shows that analysts have raised their net profit margin estimates for S&P 500 companies for 2022 from 8.7 percent at the beginning of the year, to 10 percent last month, to 10.7 percent.
Some analysts say there’s a misalignment between the recent run of softer U.S. economic data and projections and the rosy earnings forecasts.
“Economists have begun to cu …