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 estimates for S&P 500 companies. That brought profit projections from these top-down forecasters into alignment with a much bigger set of company analysts, the single-stock researchers who follow individual companies.
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.
