World stocks are stuck in a bear market as major central banks struggle to contain rising inflation.
Investors and analysts warn that the upcoming corporate earnings season could send global stock prices plummeting again, with earnings forecasts looking overly optimistic given the growing recession risks.
After dropping more than $20 trillion in value since hitting a record high in January, world stocks are stuck in a bear market as major central banks struggle to stem inflation. increase without derailing the nascent growth wheel.
Valuations have fallen below historical averages, which could tempt bargain hunters. However, recent profit warnings from US retailers Target and WalMart and pandemic winners like Zalando and B&M have left traders worried about a series of downgrades, as energy spirals and other input costs fall and consumers cut back on spending.
Emmanuel Cau, a strategist at Barclays, said earnings were “taken over from valuation as the next market driver”.
According to the Bank of England, the stock market may struggle to find a bottom until profit forecasts are reset to lower levels. That’s because the expectation of high returns “optical deflation” values the company to a level that can mislead investors.
Francesco Cudrano, advisor to Simplify Partners, said: “There are very few downward revisions to corporate earnings, still too much optimism. That’s why we expect another round of corrections as earnings. was announced and with this volatility, one really risks being beaten.”
He said his company has cut its equity ratio and raised cash in anticipation of a 15-20% drop in the market. JP Morgan kicks off US earnings on Thursday, with the European season kicking off next week.
“Negative pre-announcements can happen at any time,” said Eric Johnston, head of equity and cross-asset derivatives at Cantor Fitzgerald. “.
“We don’t see a scenario where the Fed could rest for at least four months even if growth is waning and even if stocks plummet,” he added, referring to the Fed’s current interest rates. US Federal Reserve bull cycle.
The probability that global corporate earnings will be higher in a year has dropped to 37%, the lowest level since late 2015, according to Absolute Strategy Research, which surveyed 5.2 trillion wealth management investors. USD according to their expectations.
The same survey found a record low 53% probability that returns on investments in stocks will outperform bonds over the next 12 months.
Economists have raised recession rates in the United States and Europe, citing aggressive interest rate hikes and war in Ukraine, but earnings forecasts for this year have continued to rise since January.
According to Refinitiv, incomes in Europe will grow by 15.2% in 2022 and 4.1% next year while in the United States it will increase by 10.8% and 9.1% respectively.
Barclays sees Europe’s STOXX 600 index down 8% to 380 points. US Bank Wealth Management has revised its year-end S&P 500 forecast 16% to 4,050.
The MSCI AC World Index trades at forward earnings of 14.3 times, about 11% below the 20-year average. However, that does not reflect any possible negative earnings adjustments in the coming months.
“Plunging real earnings, worsening global activity, protracted war and uncertainty are all reasons for concern,” said Michele Morganti, senior strategist at Generali Investments.
(This story has not been edited by NDTV staff and was automatically generated from the syndication feed.)
