The crisis under the feast of US stocks: valuations approaching perfection, but profit expectations are already turbulent

According to the Zhitong Finance APP, just as U.S. stocks approach historical highs, analysts are showing signs of fatigue in their optimism regarding corporate earnings, which suggests that the upward momentum in U.S. stocks may face obstacles this earnings season. Citigroup's index tracking adjustments to U.S. corporate earnings expectations—comparing the number of analysts raising versus lowering earnings forecasts—has leveled off for the first time since August. Meanwhile, the expected price-to-earnings ratio of the S&P 500 has reached 22 times, higher than the nearly 19 times average over the past decade. Evercore ISI strategist Julian Emanuel noted in a report that the impact of earnings on stock prices will "exhibit a differentiated and severe trend, making it difficult to serve as a catalyst for pushing the index upward." He also added that the current market is in a state of "near-perfect pricing." This Tuesday, banks such as JP Morgan (JPM.US) and Citigroup (C.US) will be the first to release their earnings reports, marking the official peak of the U.S. stock third-quarter earnings season. From early market reactions, investor expectations are already high. Taking Levi's (LEVI.US) as an example, although the apparel company raised its earnings guidance, its performance still fell short of market expectations against the backdrop of a 42% increase in its stock price this year, leading to a 13% drop in its stock price on Friday. Tesla (TSLA.US) faced a similar situation: despite the company reporting record third-quarter vehicle deliveries (most analysts had previously expected strong quarterly performance), its stock price still declined. Tesla will release its complete quarterly earnings report on October 22. Last week, driven by optimistic prospects in the artificial intelligence sector and robust performance of the U.S. economy, U.S. stocks reached historical highs. However, Trump's tariff threats against China reversed market sentiment. Nevertheless, on Monday, U.S. stock futures showed signs of rebound, as Trump signaled a willingness to reach an agreement with China. Lori Calvasina, a strategist at Royal Bank of Canada Capital Markets, stated that due to the intensified impact of tariff policies on businesses, the proportion of companies exceeding earnings expectations this quarter may be lower than in the previous quarter. Data shows that analysts currently expect a year-on-year increase of 7.4% in U.S. corporate earnings, which would be the lowest growth rate in two years. Calvasina pointed out: "For those large-cap companies within the S&P 500 index, market sentiment regarding their earnings is at a critical turning point." On the other hand, Morgan Stanley strategists believe that the current deterioration in the breadth of earnings expectation adjustments aligns with the typically weak seasonal trends in October. They wrote in their report: "Given that we expect corporate earnings expectations to further improve by 2026, we believe the current adjustments are merely a brief pause before the market's subsequent upward movement."