Earnings Alarm Bells Ringing for Market Showing Signs of Fatigue

The group, including PP Industries Inc. and Sherwin-Williams Co., are primarily materials producers that have struggled amid supply-chain disruptions. While just a small part of the S&P 500, their earnings have historically been the most correlated to the index’s of all sectors, a study by Bank of America Corp. found.

The profit warnings come as economic growth is slowing, price increases for final products and services are missing forecasts and wage pressure is building. Taken together, the result is a deterioration in what BofA calls the “corporate misery indicator,” another signal that worsening earnings momentum could spread into the broader market. That would rob bulls of a key reason stocks have weathered everything thrown at the market in the past 18 months — corporate America’s ability to deliver blockbuster results.

“It’s been upward earnings revisions that have supported stocks here and rather high valuations,” Jeffrey Kleintop, chief global investment strategist for Charles Schwab & Co., said in an interview on Bloomberg TV with Caroline Hyde. If “we start getting some disappointment, as we’ve recently had with the economic data, that could undermine the key support for the market.”

The S&P 500 fell 0.6% in the past five days, for a second straight weekly drop. Its Friday slide was the worst in a month, and it last hit an all-time high on Sept. 2. That barren period contrasts with earlier this year, when the index rose to arecord almost every week.