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Wall Street equity strategists think resilient earnings will keep stocks buoyant through the end of the year even as the Federal Reserve lifts interest rates. If they’re right, the S&P 500 Index looks like a bargain, but serious cracks are emerging in their earnings thesis.

A Bloomberg survey published this week showed the average strategist projects the index will end the year at 4,743, an implied upside of 21% from Wednesday’s close after the index fell more than 4% on the day. As the thinking goes, earnings have held up so far, and strategists still project that they’ll post about 10% growth on the year, even though the index has fallen about 18% year to date — an alluring proposition for investors sitting on cash and wondering when to wade back in.

Yet the trend in strategist revisions may matter more than the actual level of the forecasts, and more downward adjustments may be in the offing after developments this week. Walmart Inc. and Target Corp. both cut their growth outlooks this week, showing even stores known for bargains remain vulnerable to the highest inflation in 40 years. Walmart now projects earnings will fall 1% this year compared with earlier estimates of single-digit gains. Target, for its part, cut its projected full-year operating income margin to “around 6%” from a previous “8% or higher.” In both cases, the companies are proving cautionary tales: For the most part, higher costs are offsetting resilient same-store sales.

Perhaps unsurprisingly, strategists are decent at projecting the S&P’s destination in normal times, but the consensus is often wrong — or at least excessively slow to adjust — when the outlook gets messy. 

In the 23-year-old series, the May projections of strategists surveyed by Bloomberg have undershot the actual end of December index value 14 times and overestimated it nine times. But the underestimates were often close calls, and some of the overshoots were egregiously wrong, including most notably in 2008 and every year of the dot-com bust. If you think there’s a chance that 2022 may join those ignominious years in market history, you might be better off ignoring the consensus.

The latest announcements from Target and Walmart show inflation is already pressuring profits, and that’s without considering the possibility of a recession. While strategists’ outlooks underscore the upside potential to stocks, the past week is a reminder that there’s plenty of risk on the downside, too.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jonathan Levin has worked as a Bloomberg journalist in Latin America and the U.S., covering finance, markets and M&A. Most recently, he has served as the company’s Miami bureau chief. He is a CFA charterholder.

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