BlackRock warned against overly optimistic forecasts of corporate earnings growth in the US
BlackRock says profit growth forecasts for US companies are overstated / Photo: X/BlackRock
Investor expectations for corporate earnings growth are overstated given inflationary pressures caused by the conflict in the Middle East, says BlackRock. Wall Street is gradually already revising estimates, but so far the consensus view still suggests double-digit earnings growth in the S&P 500.
Details
Current earnings growth forecasts, which remain at 15-18%, look overly optimistic and leave room for a significant decline, Helen Jewell, investment director for fundamental equities at BlackRock, said in an interview with Bloomberg TV. Expectations of strong growth in the consumer sector are "difficult to reconcile" with persistently high interest rates and the impact of the conflict in the Middle East on inflation, she said.
Earnings growth in energy and commodities could be offset by weakness in other segments (e.g., airlines), leaving overall earnings momentum "essentially flat," Jewell said. At the same time, she said, the market is underestimating the level to which inflation could rise and the likelihood that oil prices will remain high for longer than currently expected.
In such an environment, Jewell recommends that investors target "long-term winning structural players" in the energy and defense industries that will be the beneficiaries of heightened global security risks.
Context
The first signs of revised expectations for profit growth are already appearing, Bloomberg notes. Citigroup's U.S. earnings momentum index moved into negative territory last week as the number of downgrades exceeded upgrades at the strongest pace in a year. Still, according to data compiled by Bloomberg Intelligence, the consensus of analysts suggests that earnings per share for companies in the S&P 500 could rise 16% this year - which could be the strongest result since 2021.
At the same time, expectations on monetary policy are changing: traders are moving away from the scenario of large-scale rate cuts and laying down the risk of their increase, including on the part of the European Central Bank, Bloomberg notes.
This article was AI-translated and verified by a human editor
