US Stock Market Faces Further Decline Possibility Amid Q2 Corporate Earnings Slowdown

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] As the U.S. stock market continues to plunge due to the Federal Reserve's (Fed) tight monetary policy in response to the highest inflation in 40 years, concerns are emerging that stock prices may fall further due to a slowdown in the earnings of U.S. companies in the second quarter (April to June).

According to the Wall Street Journal (WSJ) on the 12th (local time), the S&P 500 index has fallen 18% so far this year. This is the worst decline since 1962 based on the beginning of the year. WSJ reported, "As doubts about the durability of recent corporate earnings growth increase, stock price outlooks are also deteriorating."

In fact, ahead of the second-quarter earnings announcements next month, companies are increasingly lowering their earnings forecasts (guidance). Microsoft (MS) lowered its revenue and earnings per share forecasts on the 2nd, citing the strong dollar. Retailer Target also lowered its expected operating margin for the second quarter on the 7th, stating plans to take measures such as product price discounts to reduce excessive inventory.

Michael Wilson, Chief Investment Officer (CIO) and Head of U.S. Equity Strategy at Morgan Stanley, said, "Our general view is that the bear market is not over," adding, "We do not believe the selling pressure has ended." He and his colleagues at Morgan Stanley forecast that due to the Fed's interest rate hikes and downward earnings revisions, the S&P 500 index could fall about 13% from its current level to around 3400 by mid to late August.

While the U.S. Consumer Price Index (CPI) continues to soar, the preliminary University of Michigan Consumer Sentiment Index for this month (50.2), released last week, plunged to the lowest level since its inception, which is also interpreted as a sign of slowing growth.