Last week, in an article titled “One Way or Another, We’re Going to End Up in the Same Place“, we wrote that we expected the Federal Reserve rate hikes to work and in the process, cause a further slowdown in economic growth. Deep Knowledge Investing has said and written since February that the US economy is currently in stagflation, and we expect the actions of the Fed to cause other market participants to become aware that GDP growth has turned negative. In our article, we noted that despite slowing growth and higher fuel costs (which are an expense for most of the S&P 500), earnings estimates hadn’t declined (and had actually risen slightly). Our view is that S&P 500 earnings estimates will need to come down which would likely lead to lower stock prices.
Today, Yahoo Finance made almost exactly the same point writing:
With quarterly corporate earnings season set the pick up in the next few weeks, the focus will soon shift to how companies have been navigating persistent inflation alongside early indications of softening demand. As of Friday, consensus Wall Street strategists were still predicting S&P 500 earnings would grow, in aggregate, by 10.4%, according to FactSet. Some have indicated this estimate will need to be revised down to fully reflect inflation’s impact to margins, and the effects of an otherwise softening economy.
We’ve written a number of articles recently criticizing large Wall Street firms like JP Morgan Chase, Goldman Sachs, and Deutsche Bank for being hopelessly behind on recognizing the economic turmoil affecting millions of Americans as well as the accounts of their clients. Let’s give a round of applause to Yahoo Finance today for being on top of this coming development.
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