Inflation bills are coming in, and Wall Street is starting to discount the "profit feast" for American companies.

U.S. corporate earnings expectations are experiencing their first reversal in months. Inflationary pressures and rising interest rates are eroding corporate profit prospects, and Wall Street analysts' optimism is beginning to wane.

According to Citigroup indices, the number of analysts lowering their earnings forecasts exceeded those raising them, ending a 23-week streak of upward revisions—the longest earnings forecast upgrade cycle since September 2021.

Stephan Kemper, Chief Investment Officer of BNP Paribas Wealth Management Germany, attributed the downgrade to the combined impact of rising living costs and energy prices, with the most affected sectors including consumer staples, consumer discretionary, materials, and financials. Meanwhile, the OECD released a report this Wednesday warning that global inflation in 2027 will be faster than previously predicted, meaning that pressure for monetary policy tightening will continue.

Analysts expect a directional reversal.

According to an index tracked by Citigroup, for the first time in 23 weeks, analysts have lowered their earnings forecasts for U.S. companies than raised them, signaling the end of the longest period of upward revisions to earnings expectations since September 2021.

Stephan Kemper stated, "The main driver of the weakness is from the consumer side, whether in the consumer staples or discretionary sectors, as well as the materials and financial sectors. I believe these downward revisions are directly linked to rising living costs and higher energy prices."

It is worth noting that Wall Street analysts remain generally optimistic about the earnings performance of U.S. companies this year, and generally expect them to record substantial profits.

The stock market faces valuation pressures, and the risk of monetary policy tightening is rising.

Downward revisions to earnings expectations, coupled with multiple macroeconomic pressures, have weighed on the stock market. Morgan Stanley strategist Michael Wilson warned earlier this week that the S&P 500 could fall by as much as 7% if stock valuations continue their recent decline and further increases in energy prices prompt a tightening of monetary policy.

The Federal Reserve raised U.S. interest rates earlier this month, its first rate hike in three years, to combat inflationary pressures. A report from the OECD this Wednesday further reinforced market expectations of a continued tightening path – the organization believes that global inflation will be faster than previously predicted in 2027, requiring major central banks to maintain a tight monetary policy stance at that time.

For investors, the combination of downward revisions in earnings expectations and rising interest rates means that the valuation logic of equity assets faces a double challenge: the numerator (corporate earnings) is under pressure, while the denominator (discount rate) is rising, and the risk of short-term market adjustments cannot be ignored.

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