Earnings outlooks are being slashed amid the highest uncertainty for US firms since the pandemic, Morgan Stanley's CIO says
"Earnings revisions breadth is now at levels rarely witnessed," Morgan Stanley wrote, adding that uncertainty is the highest since the pandemic.
admin
Xinhua News Agency
- US firms face the most uncertainty since the early COVID era, Morgan Stanley says.
- S&P 500 earnings revisions are approaching downside extremes.
- "Earnings revisions breadth is now at levels rarely witnessed," Mike Wilson wrote.
Companies are facing more uncertainty than they have in years, and the outlook for earnings is deteriorating at a rapid pace, Morgan Stanley said on Monday.
Trade war uncertainty, interest rate jitters, and looming recession fears are collectively weighing on earnings confidence and causing a vast revision of outlooks for corporate profitability.
Morgan Stanley chief investment officer Mike Wilson notes that S&P 500 earnings revisions breadth — or the number of revisions of future profits — is at "downside extremes."
"Earnings revisions breadth is now at levels rarely witnessed," Wilson wrote. "S&P 500 revisions breadth [is] now approaching downside extremes (in the absence of a recession)."
Bloomberg Intelligence data found that estimates for earnings-per-share growth have dropped from 11.4% to 6.9% since the start of the year. Morgan Stanley
Earnings revisions peaked nearly a year before the S&P 500 achieved its most recent record.
"This is why we are now more interested in looking at stocks/sectors that may have discounted a mild recession already even if the broader index has not," Wilson wrote. "In short, if a recession is averted, markets likely made their lows 2 weeks ago."
To be sure, there is still a risk that the S&P 500 tumbles further. Tariff policy whiplash and anxieties over economic growth have already sent stocks into bear market territory this month, and the S&P 500 could fall another 6% below the 4,800 level due to a handful of factors, including hawkish interest rate policy or a jump in the 10-year Treasury yield past 5%.
Still, Morgan Stanley continues to bet on 5,000 to 5,500 as a reliable range for the index, at least until the current risks are either dismissed or confirmed by upcoming data.
