Goldman Sachs says the wave of earnings beats may be over, warning that US equities face less support from corporate profits as economic tailwinds fade.
Goldman Sachs warns that the recent wave of earnings surprises is unlikely to be sustained, implying potential downside for the S&P 500 as corporate profit growth tapers and a key support pillar for equities weakens.
Goldman Sachs notes that the prior wave was fueled by temporary tailwinds that are now fading, making it harder for companies to beat lowered expectations.
If earnings disappoint, the S&P 500 could decline as the market adjusts valuations to a lower earnings growth trajectory.
The warning of fading earnings surprises could increase market uncertainty, leading to a rise in the VIX as investors price in higher volatility amid doubts about corporate profit momentum.
Earnings surprises often anchor bullish sentiment; if they dry up, uncertainty increases, prompting demand for volatility protection and pushing the VIX higher.
Indirectly – Goldman's call suggests a shift in the earnings cycle that could increase market stress, typically reflected in a rising VIX.
Goldman Sachs warned that the recent string of stronger-than-expected corporate earnings is unlikely to be sustained, signaling potential headwinds for US equity markets. The bank's strategists pointed to a challenging macroeconomic environment and diminishing tailwinds, suggesting investors should temper expectations. The call raises concerns that the S&P 500 could lose a key support pillar if profit growth disappoints.
Goldman Sachs analysts warned that the wave of positive earnings surprises seen recently is unlikely to be sustained, as economic tailwinds fade and profit margins normalize.
If earnings growth disappoints, the S&P 500 could face headwinds because strong corporate profits have been a key driver of the recent rally.