Stocks don’t fully reflect risks to corporate earnings

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Strategists at Morgan Stanley, Goldman Sachs Group and BlackRock said they are wary of the economic outlook, and investors should not rush to buy the sell-off.

Even amid this latest leg of the stock market sell-off, equities still aren’t fully reflecting the risks facing corporate earnings, according to strategists at Morgan Stanley, Goldman Sachs Group and BlackRock Investment Institute.

That view echoes what’s being said by Morgan Stanley and Goldman Sachs, who both believe stocks aren’t fully reflecting the challenges facing the economy.BlackRock, which is overweight equities in the long run, is neutral on stocks over the next six to 12 months. While profit margins have climbed for the past two decades, BlackRock now see increasing risks as businesses struggle to pass on higher costs to consumers.

Meanwhile, Goldman Sachs Group strategists led by David J. Kostin said that US earnings estimates are still too high and expect them to be revised downwards even further.P 500, “equity valuations remain far from depressed”, Kostin wrote in a note. The surprisingly high inflation data show “that the Fed’s battle with inflation has put a ceiling on equity valuations”.

 

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