Downgrades outpaced upgrades for the first time in 23 weeks, snapping the longest streak of positive earnings revisions since 2021.
Wall Street’s earnings optimism just hit a speed bump. For the first time in 23 weeks, downgrades of US corporate earnings estimates outnumbered upgrades, according to a Citigroup index tracking analyst sentiment. The shift ended what had been the longest unbroken streak of net positive earnings revisions since September 2021.
What broke the streak
The Federal Reserve raised interest rates earlier in September, its first hike in three years. The OECD has also flagged that global inflation in 2027 will likely exceed prior forecasts, suggesting central banks may need to lean even harder on the brake pedal.
The weakness in earnings estimates is not evenly distributed. Consumer staples, consumer discretionary, materials, and financials are the sectors drawing the most concern. When the cost of living rises, households pull back on spending, and companies selling everyday goods or discretionary items feel it first. Financials face their own version of the squeeze, caught between higher funding costs and the risk that borrowers start struggling.
Morgan Stanley raises the alarm
Morgan Stanley strategist Michael Wilson warned that the S&P 500 could fall as much as 7% if valuations continue to weaken, particularly if energy prices push inflation high enough to force additional monetary tightening.
The broader picture is not all bad
Despite the shift in near-term sentiment, the consensus view for full-year 2026 US earnings growth remains broadly constructive. Analysts still expect what some are describing as a strong year overall for corporate profits. The negative revision balance reflects caution at the margins, not a wholesale abandonment of the bull case.
Consumer staples and financials in particular are now operating in an environment where the earnings tailwind is weakening. If the OECD’s inflation projection for 2027 forces the Fed’s hand toward additional hikes, the current pessimism among analysts could deepen into something more systemic.
