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Excessive optimism

Market consensus estimates earnings per share growth for the S&P500 in the second half of 2022 at 10.3%. That is very optimistic in absolute terms, where CEOs are talking about economic slowdown and layoffs in their conference calls, and in relative terms, to long term historical median. What this means, in practical terms, is that despite the fact we have seen a #correction in the equity markets already, we may see further downward pressure. The way this dynamic typically unfolds is through pre announcements, where companies inform analyst that earnings for 3Q will come “lighter” than expected, followed by market price adjustments and maybe credit spreads adjustments.

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