Earnings Expectations Look Too High

Thoughtful commentary from our partners at BlackRock:

Equity earnings

Stocks are starting to reflect the economic damage from higher rates – and we see more hikes due to sticky inflation. But expected earnings still look rosy to us.

Market backdrop

U.S. stocks fell over 4% last week and erased most of their gains for the year, partly after Fed officials made clear they could step up the pace of rate hikes.

Week ahead

This week’s U.S. inflation report will be a critical gauge before the Fed’s next policy meeting. The European Central Bank is likely to raise rates by 0.5%.

Stocks are starting to reflect the economic damage of rate hikes. We think earnings offer little support – expectations for this year are still too rosy. We think corporate margins could get hit by higher costs and reduced pricing power aSave Posts goods shortages ease. We see an earnings hit on top of that from recession as central banks fight sticky inflation – and are poised to hold rates higher for longer. We prefer short-term bonds for income and emerging market (EM) equities.

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