Wilson, who has been among the most vocal bears on US stocks and correctly predicted this year’s selloff, said that even though inflation could indeed have peaked “from a rate of change standpoint,” the impact on consumer demand won’t “easily disappear even if inflation declines sharply because prices are already out of reach in areas of the economy that are critical for the cycle to extend.”
A rising number of analysts have also said that with inflation proving persistent at a four-decade high, it will take a recession -- and markedly higher joblessness -- to ease price pressures significantly.
JPMorgan’s Matejka said that another factor that improves the outlook for equities in the second half of the year is the changing reaction to earnings, where weaker results can start being seen as good news.
Wilson disagrees, saying that earnings estimates for S&P 500 firms are still too high and that the second quarter is likely to be the first of “several disappointing quarters before estimates finally trough.”
As such, stocks may have further to fall before hitting a bottom, he said. “Recent positive price action to some earnings cuts is unlikely to be the low for most stocks as it’s usually unwise to buy the first cuts when we are entering a major revision cycle,” Wilson wrote on Monday.
Strategist David J. Kostin at Goldman Sachs Group Inc. also sees pressure on S&P 500 revenues from a stronger dollar. The bank’s top-down model shows that a 10% appreciation in the trade-weighted greenback should reduce earnings-per-share by 2% to 3%, he wrote in a note on July 22.
--With assistance from Michael Msika.
This article was provided by Bloomberg News.