Morgan Stanley | In reality, during H1 2022 the market was already discounting the FED and the toughening of financial conditions. So we do not see the FED as an additional risk: the biggest risk we see is the declines in future profits.
In this respect, our advance profits’ model projects a significant drop in EPS growth over the coming months. A key input in this model is the ISM index and the manufacturing PMIs, as well as the FED’s regional manufacturing surveys, all of which point to declines in the ISM. At the same time, the exchange rate in the revisions of profits are giving bearish signals. On the other hand, the spread between the future growth in sales and the exchange rate of the PPI, as well as the spread between the growth in nominal GDP and the growth in wages suggest pressure on margins and profits.