Stocks don’t fully reflect risks to corporate earnings

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.

“We’re not buying the stock dip because valuations haven’t really improved, there’s a risk of Fed overtightening, and profit margin pressures are mounting,” BlackRock strategists, led by Wei Li, wrote in a note to clients on Monday . “We expect the energy crunch to hit growth and higher labour costs to eat into profits,” Li and her team added.

“The Equity Risk Premium does not reflect the risks to growth, which are increasing due to margin pressure and weaker demand as the consumer decides to hunker down,” Mr Wilson wrote.

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