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Investors worry that earnings season will cause stocks to drop again.

MILAN (Reuters) – Investors and analysts warn that the coming corporate earnings season could cause another sharp drop in share prices around the world because profit forecasts look too optimistic given the growing risk of a recession.

Since January, when they hit record highs, world stocks have lost more than $20 trillion in value and are now stuck in a bear market. This is because major central banks are struggling to stop rising inflation without stopping growth that is just getting started.

Valuations have dropped below the averages of the past, which could make bargain hunters want to buy. But recent profit warnings from U.S. retailers Target (NYSE:TGT) and WalMart and global winners like Zalando and B & M have traders worried about a series of downgrades as rising energy and other input costs hurt and consumers cut spending.

A Barclays (LON: BARC) strategist named Emmanuel Cau said that earnings were “taking the place of valuations as the next market driver.”

The British bank says that the stock market may not be able to find a bottom until profit forecasts are lowered. That’s because high expectations for profits “deflate” the value of a company to a point where investors can be misled.

“There haven’t been many changes that make corporate earnings look worse, so people are still too optimistic. Because of this, we expect another correction when the earnings report comes out, and with this kind of volatility, one really risks getting beat up. Francesco Cudrano, a consultant at Simplify Partners, said this.

He said that his company had been reducing its exposure to stocks and bringing in more cash in preparation for a 15-20% drop in the market. JP Morgan will be the first company to report earnings in the U.S. on Thursday. Next week, the earnings season will start in Europe.

“Now, bad news can be given ahead of time at any time. “Both sales and profits are at risk,” Eric Johnston, who is in charge of equity derivatives and cross assets at Cantor Fitzgerald, said.

“We don’t see a scenario in which the Fed can take its foot off the brakes for at least four months,” he said, referring to the U.S. the Federal Reserve’s current cycle of raising interest rates. This is true even if growth slows and stocks fall sharply.

Absolute Strategy Research asked investors who manage $5.2 trillion in assets about their expectations. They found that the chance that global corporate earnings will be higher in a year has dropped to 37%, the lowest level since late 2015.

The same survey found that there is a record low 53% chance that the returns on stocks will be higher than those on bonds in the next 12 months. percent of higher earnings, ASR survey

20% of the time.

20 earnings percent higher percent

20 percent



Economists have said that aggressive interest rate hikes and the war in Ukraine have made it more likely that the U.S. and Europe will go into a recession. However, earnings predictions for this year have been going up since January.

According to Refinitiv, earnings in Europe should go up by 15.2% in 2022 and by 4.1% in the coming year. In the US, earnings should go up by 10.8% in 2022 and by 9.1% in the coming year.

Barclays thinks that the STOXX 600 index in Europe will fall by 8%, to 380 points. U.S. Bank Wealth Management has reduced its S&P 500 forecast for the end of the year by 16%, to 4,050 points.

The MSCI AC World index is worth 14.3 times future earnings, which is about 11% less than the average over the past 20 years. That doesn’t take into account any negative changes to earnings that could happen in the coming months.

“A sharp drop in real income, deteriorating global activity, a long war, and uncertainty are all reasons to worry,” said Michele Morganti, a senior strategist at Generali (BIT: GASI) Investments. She said that earnings forecasts for the second halves of 2022 and 2023 might be cut.

MSCI AC World price and PE, available at

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