Stocks have fallen for a number of reasons this year. But there’s another shoe that’s about to drop that should send equity prices even lower: margin compression.
Despite companies’ profits getting squeezed by higher input costs due to hot inflation AND rising costs of capital, Wall Street analysts are still projecting robust earnings growth for 2023.
Those estimates are going to have to come down soon in order to better match the unfolding reality.
Next month’s earnings calls are likely to be the catalyst for that, as companies reveal the havoc this current margin compression is having on the current and future earnings.
So even if markets experience a short-term bounce over the next few weeks, it’s likely to be short-lived once the Street is forced to take margin compression seriously.