Deteriorating earnings could send stocks down 5-10%

Please log in or register to like posts.

Recent revenue losses from tech and retailers have investors worried, said Lisa Shalett of Morgan Stanley. Snap’s earnings warning this week rattled stock markets, as its CEO explained the headwinds for business. Further profit cuts are likely and could send already struggling markets down another 5-10%, the investment chief said. Something is loading.

Morgan Stanley’s Lisa Shalett says a string of eye-catching profit losses by tech and retail leaders signals it’s time to recoup stocks boosted by the pandemic-era stimulus — and that could pull markets down.

As companies face new headwinds, investors can expect to see a shock from rapidly deteriorating earnings revisions, Shalett said in a note this week.

“The market narrative has shifted from worries about the Federal Reserve’s ability to execute a soft landing for the economy and bring inflation under control, to worries about corporate earnings and recession risk,” he said. she declared.

“Indeed, some of the corporate profit losses last week highlighted rising costs that have weighed on corporate earnings and dampened consumer demand,” she wrote.

The comments from the wealth management CIO come a week later when a reduction in Snap’s earnings outlook hit the stock market, helping to drive losses not just in tech, but across the board.

Shares of parent Snapchat fell 38% on Tuesday, while parent Facebook Meta slid 9% and Twitter fell 2%.

Snap’s CEO has warned that the “macroeconomic environment has deteriorated further and faster than expected” in 2022, which will affect the social media platform’s hiring and revenue growth for the rest of the year. year.

The likes of Walmart, Target, Amazon and Google’s parent Alphabet have pointed to similar pressures in recent updates as they warned of missed profit and revenue targets.

Corporate profits surged in 2020 and 2021, fueled by record government stimulus that skewed consumer demand toward goods and “stay-at-home winners” at the start of the pandemic, Shalett noted.

The Fed’s monetary policy tightening and slowing economic growth undermined these trends, with the central bank aggressively raising interest rates to rein in runaway inflation.

“It seems inevitable that there will be some recovery in corporate earnings this year,” Shalett said.

“With fiscal stimulus ending, consumers spending more on services at the expense of goods, and inflation hitting business spending, profits would suffer.”

Morgan Stanley has warned that even the biggest mega-cap tech companies are unlikely to be immune to the triple threat of tougher policy, higher inflation and a stronger dollar.

“With last week’s notable profit losses in the retail and technology sectors due to excess inventory, high costs and price-driven demand destruction, the next phase of stock repricing started,” Shalett said.

U.S. 75-day earnings revisions were the worst of any market, including European, Asia-Pacific and emerging markets, according to Morgan Stanley.

Stocks fell in 2022 as investors worried about Federal Reserve monetary tightening, the risk of an economic slowdown, soaring inflation and the impact of war in Ukraine.

The tech-heavy Nasdaq fell the most, down nearly 25%, while the S&P 500 is down nearly 15% and flirted with bearish territory, and the Dow Jones fell more than 10% over the year to date.

With a potential recession looming in the background, an earnings revision shock could send U.S. stock markets lower further, according to Shalett.

“Ultimately, we estimate equity indices could take another 5% to 10% decline from this earnings expectation reset,” she said.

Morgan Stanley’s chief investment officer recommended using market volatility to shift portfolios toward maximum diversification, quality factors and active management. She recommended deploying cash in high-quality bonds, non-US equity funds and cyclical stocks such as financials, energy and industrials.

Time, Card, Where To Watch AEW Double Or Nothing 2022 Online
How to make an introduction video - Video marketing for business #5


Already reacted for this post.


Your email address will not be published. Required fields are marked *