With bond yields jumping and inflation expectations surging, this would seem like a strange time for optimism to break out among Wall Street’s equities handicappers.
But that’s exactly what it has done. And the reasons offer a lens into what kept the stock market’s worst three-day decline since October from spinning further out of control this week.
It was hard to notice, but while markets were lurching, stock strategists at securities firms were busy jacking up their earnings ..
While nobody believes the published opinions of strategists are particularly meaningful to the day-to-day motion of share prices, the phenomenon illustrates a dynamic that’s been supporting equities for more than a year. Namely, the slow and almost invisible improvement in corporate profits that’s accompanied growing inflation anxiety and spotty data — and continues to put a floor under selloffs.
“It’s going to be challenging to have a deep correction when you have an economy that is very strong and earnings revisions that are still moving up at a brisk pace,” said Keith Lerner, chief market strategist at Truist Advisory Services. “That just provides a cushion for pullbacks, and that’s exactly what we saw this week”.
