After the worst first half for US stocks in decades, a big rally last week sparked some optimism that the worst of the sell-off may be behind us, but not everyone is convinced. Perhaps not surprisingly, market watchers are reluctant to bottom out in the brutal sell-off, but there is one indicator that many strategists say is key: earnings revisions. Trevor Greetham, head of multi-assets at Royal London Asset Management, says an “earnings downturn” is looming, which he expects to “go on for quite some time”. “Earnings are the next problem… This rally could linger a little longer, but don’t think this is the end of the bear market,” he told CNBC’s “Squawk Box Europe” on Monday. Morgan Stanley is also closely watching the earnings revisions. “Equity markets tend to fall 2-3 weeks before earnings revisions bottom out, however earnings revisions haven’t even turned negative yet,” Morgan Stanley’s European strategists, led by Graham Secker, said on Monday. . In a separate note on US equities, the bank noted that the S&P 500’s rebound last week was due to rising valuations, an “unusual” phenomenon given growing earnings concerns. “Falling yields and lower oil prices have lowered the terminal rate for the Fed. Whether this is bullish or bearish is up to one’s interpretation. Last week, the market took a bullish view that may last a few more weeks before the reality of lower profits hits. and the bear market resumes,” said strategist Michael Wilson. Read More With recession fears rising, UBS dives into the history books to predict what could happen These global stocks look oversold, with analysts expecting a rally Goldman Sachs analysts reveal some of the ‘hottest’ stocks as recession fears mount Secker noted that while MSCI Europe may be in the latter stages of a valuation cut, the price drop from peak to The bottom line still looks fairly modest relative to previous recessions, thanks to earnings estimates that have continued to rise year-to-date despite the sharp decline in stock prices, Secker explained. we do not expect this divergence to last much longer and see a high probability that the economic news flow will have deteriorated in the coming months, which should put pressure down on [gross domestic product] Y [earnings per share] How far can earnings go? In a note titled “Earnings: How Far Can They Go?” UBS also highlights the importance of earnings, though it takes a slightly more optimistic tone. “With the S&P 500 P/E down [around] 6x YTD, how much earnings will fall is a key debate,” strategists at the bank, led by Keith Parker, wrote last week. He added that his baseline scenario for the US is “slow growth but no recession.” share (EPS) of $235.50 and $250 for the S&P 500 for 2022 and 2023, respectively, which they believe are “achievable.” This compares to $186.60 in 2021, according to FactSet data. However, the strategists emphasize that “the risks are to the downside.” The bank has an “implied EPS change indicator” that remains positive, pointing to further improvements. “S&P 500 implied revisions over the next 8 weeks remain positive. Energy, utilities and REITs have the highest sector-level implied EPS revisions. Transportation and Banks lead GI [investment grade]the analysts wrote. The bank said its gauge had been a “helpful signal” during periods of market weakness and earnings downgrades, including the 2008-2009 stock market crash.