Softer U.S. economic data may point to weaker earnings over the next several months as corporates’ pricing power will erode as inflation cools, while labor costs continue to be a headwind for private sector profits, according to Morgan Stanley’s Michael Wilson.
Among 85% of S&P 500 SPX companies reporting actual results for the first quarter of 2023, 79% of those companies have reported a positive earnings-per-share which beats Wall Street estimates, while 75% of them have reported a positive revenue surprise, according to FactSet data. That is a “better guidance outcome than we expected coming into the quarter and a different one than what we have observed the past few quarters,” said Wilson.
However, much of the macro data may be providing a “false signal” as leading indicators point to downward trends in EPS surprise and margins over the coming months, said Wilson.
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