Shrinking margins could spell trouble for stock-market returns: Goldman Sachs

Shrinking margins are a downside risk to stock-market returns as hotter-than-expected inflation readings and what’s expected to be another outsize interest-rate hike bring mounting uncertainties to earnings, according to Goldman Sachs strategists.

The consensus expects the index’s net profit margins to climb to a new high of 12.8% in 2023, according to FactSet data, but Goldman strategists believe these forecasts are “too optimistic and will be cut”. Meanwhile, Morgan Stanley’s Michael Wilson, one of the Wall Street’s most vocal bears who correctly predicted this year’s stock market selloff, suggested that “reality” has not been priced in yet, as “investors may face a volatile path in the absence of an ‘event’ to clear the decks”.

That's a buy signal

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The tightening squeeze on corporate profits is the biggest risk to the stock market right nowA seemingly modest decline in profit margins can transform strong sales growth into flat or even declining earnings — and pose a major threat to the U.S. stock market, MktwHulbert writes.
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