U.S. stock earnings expectations turn negative for the first time in 23 weeks! Analysts warn that inflation and high interest rates are eroding corporate profits.

Note that stock analysts' views on the outlook for U.S. corporate earnings have turned net negative for the first time in months, reflecting market concerns that inflation and rising interest rates are eroding corporate profits. An index from Citigroup showed that for the first time in 23 weeks, the number of analysts cutting earnings forecasts exceeded those raising them, ending the longest streak of upward revisions since September 2021. More analysts are pessimistic about U.S. corporate profits Stefan Kemper, chief investment officer for Germany at BNP Paribas Wealth Management, said: "The main driver of this weakness comes from the consumer sector, including both consumer staples and consumer discretionary, as well as materials and financials." "I think these (earnings forecast) downgrades can be directly attributed to the combined effect of rising living costs and higher energy prices." Although Wall Street analysts are generally confident that U.S. companies will enjoy a bumper earnings year, some have already raised concerns about the short-term outlook for the stock market. This judgment is being echoed by more and more institutions. Helen Jewell, international chief investment officer for fundamental equities at BlackRock, the world's largest asset manager, said recently that market forecasts for U.S. corporate earnings this year are "still in a fairly high double-digit range - 15%, 16%, 17%, 18%," and therefore there is considerable room for downgrades. She particularly pointed out that, given the level of interest rates and the inflationary impact of the situation in the Middle East, the market's forecast that consumer sector earnings will remain stable "is hard to justify." In her view, the positive effect of improved earnings for energy and materials stocks will be offset by downgrades in sectors such as airlines, and overall profit growth may ultimately be "roughly flat." Beyond earnings downgrades, valuation risk is also putting strategists on alert. Michael Wilson, chief U.S. equity strategist at Morgan Stanley, warned that if stock valuations continue their recent decline and further increases in energy prices force monetary policy tightening, the S&P 500 Index faces downside of as much as 7%. His team later further noted that the market's interest rate sensitivity has risen to its highest level in recent years, with the 10-year U.S. Treasury yield approaching the key threshold of 4.5%, and rate hikes remain the core risk variable hanging over the stock market. At the macro level, there is also little room for easing. The OECD expects global inflation in 2027 to be faster than previously forecast, making further monetary policy tightening necessary; and the Federal Reserve earlier this month raised rates for the first time in three years in response to price pressures. The combination of high inflation and high interest rates means corporate profit margins and stock valuations will come under pressure at the same time.