Corporate-profit growth is on the cusp of a downturn. This is a problem because of the widely held view on Wall Street that the path of profit growth could be central to the stock market’s direction.
Stock prices can be pushed up by higher earnings or a rising price/earnings multiple. With further expansion of the multiple increasingly unlikely given the Federal Reserve’s tightening bias, the consensus view is to count on earnings growth remaining robust. But is that a reasonable expectation?