Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Analysts See Near-Term Downside Risk for Stocks

Stock Markets Aug 04, 2022 07:02
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.
 
US500
-0.12%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
FTLC
-0.06%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Senad Karaahmetovic

Berenberg strategists Edward Abbott and Jonathan Stubbs see a growing risk that may facilitate the next leg lower in the U.S. stock market.

While the recent struggles have been attributed to inflation, tightening, and geopolitical risks, Wall Street analysts are growing more vocal about the earnings estimates cuts that are likely coming.

“Our 12-month forward EPS net upgrade analysis also indicates the S&P 500 and FTSE 350 are close to entering net downgrade territory for only the fourth time in the past 35 years. Analyst estimates are moderating and we expect this to continue over the coming months,” analysts wrote in a client note.

Abbott and Stubbs pay special attention to margin compression that is likely coming. They see a 15-20% drop in earnings on a YoY basis.

“Analysis of previous earnings cycles going back to the 1970s suggests equity markets trough 75% of the way through the earnings downturn (global data). Given our view that we are still early in a likely prolonged earnings downturn, we think it is too early to take unhedged upside equity market risk.”

Net-net, Berenberg analysts urge investors to focus on portfolios that “combine resilient earnings with a secure yield pick-up over the market.”

While Goldman Sachs strategist Cecilia Mariotti says that the current rally in stocks could be further underpinned by a new increase in positioning in the near term, the analyst also sees mounting downside risks.

“Without clear signs of a positive shift in macro momentum, temporary re-risking could actually increase risks of another leg lower in the market rather than signal the end of the bear market. This is particularly the case if the positive shift is driven by the systematic community and not by fundamental investors,” Mariotti wrote in a client note.

Mariotti is also worried that the market still hasn’t seen the “true” through in positioning.

“We think the path from here is likely to become more dependent on macroeconomic data,” the GS strategist concluded.

Analysts See Near-Term Downside Risk for Stocks
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email