Why are Wall Street still anxious despite the rising revenue expectations of American companies?

The Zhitong Finance APP noted that despite investors' concerns about signs of economic slowdown and excessively high stock market valuations, they are finding some comfort from the U.S. corporate sector. This comfort comes from corporate revenue forecasts. Although there remains uncertainty regarding President Trump's trade war and the Federal Reserve's monetary policy, corporate revenue forecasts continue to improve. Jefferies' analysis shows that among S&P 500 companies that adjusted their revenue expectations this quarter, 44% raised their forecasts—this is the highest percentage since 2021. In contrast, only 14% lowered their expectations, the lowest level recorded by the firm since 2015. "Management essentially has no reason to raise guidance on things they are not 100% sure about, as they know the consequences of doing so," said Andrew Greenbaum, Senior Vice President of Jefferies' Equity Research Product Management. "I think this is largely driving the stock market higher." The optimistic revenue outlook from corporations is inconsistent with data showing signs of weakness in the labor market amid high inflation. Coupled with the uncertainty stemming from valuations appearing excessive by any measure, it is not difficult to understand why investors' concerns remain deep. A widely watched survey by the American Association of Individual Investors shows that there are more bears than bulls in the stock market; another survey by the American Association of Active Investment Managers tracking investment advisors' stock exposure also indicates that there is almost no euphoria in the market. "I don't see any signs that people are rushing to increase their risk exposure," Greenbaum said. Despite Federal Reserve Chairman Powell's remarks about an impending rate cut during his speech in Jackson Hole, Wyoming, which drove U.S. stocks to surge last Friday, market enthusiasm quickly faded at the start of this week due to concerns about the challenges policymakers face in balancing rising prices and increasing risks in the labor market. Federal Reserve officials are grappling with inflation that remains above the 2% target and is rising, along with employment data showing signs of weakness. The uncertainty regarding how tariffs will impact these factors is also becoming increasingly prominent. However, the U.S. corporate sector shows almost no signs of concern. Morgan Stanley's analysis of earnings call transcripts found that as companies readjusted their outlooks following the global trade war that erupted in early April, the mention rates of "order books" and "upward guidance" reached recent highs this quarter. The communication services, financials, consumer discretionary, and information technology sectors within the S&P 500 have all seen upward revisions in earnings per share expectations for 2025 and 2026 over the past few months. Jefferies stated that stock buybacks provide another pillar of support for the stock market, as buybacks often occur at market bottoms or mid-bull markets, rather than at market peaks. The firm's data shows that announced buyback sizes are at their highest level in three years Goldman Sachs' strategists have also pointed out the disconnect between corporate commentary and macroeconomic conditions. The company's internal economic activity indicator—tracking actual revenues excluding the volatile energy sector—grew by 4.8% year-on-year this quarter, surpassing the pace of economic growth. Nevertheless, despite the optimistic corporate outlook, some market observers warn that high valuations may limit further gains in the stock market. Matt Maley of Miller Tabak & Co. LLC noted that although guidance was raised during the summer, the increases were only sufficient to slightly boost earnings expectations for 2025 and 2026. "Therefore, while earnings growth will be decent, it is not enough to drive the further increases that many investors are hoping for, given how expensive the market is right now," he stated