Corporate Earnings Go From Savior to Nemesis for Stocks

Earnings were supposed to save the US stock market, but they may well prove to be its downfall.

In the latest example of trouble, networking equipment giant Cisco Systems Inc. told investors late Wednesday that supply disruptions would erase sales growth in the current quarter, adding to negative outlook revisions this week from retailers Walmart Inc. and Target Corp. In all cases, stock bloodbaths ensued, the broader market came under attack and analysts started slashing their estimates for where share prices might end this year.

Some 162 companies in the S&P 500 Index received target price reductions Thursday compared with only 62 increases, according to Bloomberg data. The difference marked one of the sharpest swings in analyst sentiment in the 11 years of the series.

For months, market optimists have convinced themselves that earnings would buttress the stock market from 40-year-high inflation and surging interest rates. In their view, resilient consumer demand would keep sales strong, but few counted on persistent supply chain snarls that can lead to empty shelves one month and gluts the next. Now, analysts are revisiting those assumptions, but they’re likely just getting started in earnest, and they haven’t even begun to process the possibility of a full-blown recession.