Why Experts Say Earnings Growth May Be Stalling—and What That Means For Stocks

• The spread between producer and consumer prices has narrowed, and the ISM order-to-inventories ratio has declined for three months, both historically correlated with earnings revisions and suggesting limited upside for future profit forecasts
• Oil prices surged above key levels on Middle East tensions, with Goldman Sachs warning that sustained disruptions in the Strait of Hormuz could push prices to $120 per barrel by year-end, up from their $80 baseline forecast
• Companies most vulnerable to an earnings reset include airlines, transportation firms, and industrial manufacturers with high oil exposure, as well as businesses with thin margins or limited pricing power to pass costs to consumers

Summary

Key Warning: JPMorgan analysts caution that the 2026 earnings bonanza may be stalling, despite recent earnings upgrades. While earnings forecasts have moved higher, the S&P 500 has declined—a concerning divergence signaling potential profit growth weakness ahead.

Critical Indicators:

• The spread between producer price index (PPI) and consumer price index (CPI) has narrowed in recent months, historically correlating with sales and earnings revisions
• The U.S. ISM order-to-inventories ratio has declined for three consecutive months, suggesting slowing demand

Market Implications:

With rising bond yields pressuring stock multiples, earnings growth is expected to be the primary driver of equity returns this year. Wall Street anticipates double-digit earnings growth through year-end, but any deterioration in estimates could trigger a painful stock market reset given elevated expectations.

Oil Price Threat:

Brent crude futures exceeded relevant thresholds for the first time since late May due to Middle East tensions, specifically Houthi attacks on Saudi Arabian oil tankers in the Red Sea. Goldman Sachs projects oil prices around $80 per barrel by Q4 assuming de-escalation, but warns of potential spikes to $120 if disruptions persist in the Strait of Hormuz.

Higher oil prices threaten to squeeze profit margins while dampening consumer spending, particularly impacting airlines, transportation firms, and industrial manufacturers with thin margins.

Analyst Recommendation: Investors should closely monitor corporate earnings guidance over coming weeks, as management teams typically signal rising input costs before they appear in reported results. Companies with significant oil exposure or limited pricing power face the greatest vulnerability to an earnings reset.