Key points
- Some studies link the direction of revisions to future share price performance.
- Forecasts tend to be cut most heavily once a slowdown is already under way.
- A falling earnings forecast combined with a falling P/E is a double hit to share prices.
Example
If analysts cut an index's expected earnings per share from $240 to $210 (-12.5%) and the P/E stays at 18x, the implied index level falls from 4,320 to 3,780.
In history
In the second half of 2022, analysts cut their 2023 S&P 500 earnings forecasts by roughly 10% as rising rates and slowing growth weighed on the outlook.
Related terms