Wave Of Profit Downgrades May Have Just Kicked Off

By Cormac Mullen, Bloomberg Markets Live reporter and analyst

The long anticipated wave of global earnings downgrades looks like it may have begun, though for now at least it’s more of a ripple.

Forward earnings estimates for the MSCI AC World Index have come down by over one percent from their early June high. Analysts still seem reluctant to take a knife to profit forecasts despite the threat of recession, something they had no qualms about doing with bottom-up price targets at the first sign of equity weakness this year.

Those peaked in late January and have been slashed by about 12%. That ties in with the narrative that investors are reining in the multiples they are prepared to pay for stocks in a new and uncertain inflationary regime. Stocks have fallen quicker than price targets though, as evidenced by the rising upside expected for the global equity benchmark — now just over 25%.

With global blue chips from Apple to Microsoft to Google vocally preparing for a slowdown in growth, that upside is likely to be an illusion until earnings estimates reset much lower.