“We think we will have to be prepared for broader earnings pressure as we move toward the back half of 2023 and begin to look ahead to 2024,” equity strategists led by Scott Chronert warned in a Citi Research note dated Feb. 24. They “suspect” margin risk is not priced into the S&P 500 index, despite the trend of analysts “aggressively right-sizing 2023 estimates since mid-2022.
Read: Curious’ outflows from broad industrial ETFs seen as ‘contrarian bullish’ as aerospace and defense funds attract investors Heading into 2023, they had expected that companies’ fourth–quarter results would be “better than feared, but with C-suites inclined to lower 2023 guidance to acknowledge the uncertain macro environment,” according to their note.
Meanwhile, stock-market investors have been navigating “crosscurrents” from interest rates, the Citi strategists said, with the Federal Reserve continuing to hike its benchmark rate in an effort to bring down still high inflation. Investors have worried that the Fed’s rate hikes, if too aggressive, could trigger a recession.
“Irrespective of a soft landing or recession outcome for the broader economy, we suspect that EBIT margins for the S&P 500 are poised to correct from here,” the Citi strategists said. EBIT is an abbreviation for earnings before interest and taxes, a measure of a company’s profitability.