WASHINGTON: Wage pressures are the biggest risk to the United States corporate profitability, Bank of America Corp (BofA) strategists say, as they doubled down on their longstanding warning that the period of explosive earnings growth is coming to an end.

       “Negative guidance and estimate cuts are likely in the offing,” the strategists led by Savita Subramanian wrote in a note to clients. They forecast that earnings-per-share for S&P 500 companies will beat estimates by 3% for the fourth quarter, “but see downside risks to full-year 2022.”

       While the earnings season has barely started, market reaction to the profits reported by some of Wall Street’s biggest names was muted at best, with Goldman Sachs Group Inc shares tanking on Tuesday, as trading revenue disappointed investors.

       Stock bulls, such as JPMorgan Chase & Co, expect earnings to restore confidence in the equity rally, after a rout triggered by concerns over rising rates and a deteriorating macroeconomic outlook.

       BofA strategists said that results so far are the worst since the beginning of the pandemic, as “labour shortages are increasingly evident.” Quarterly results will also be negatively affected by a spike in infections from the Omicron variant of the coronavirus, which curbed spending on travel and leisure.

       Still, the virus shouldn’t be at the top of investors’ concerns for now as more companies report results, according to BofA.

       “We should hear more on the Omicron impact as earnings broaden out, but see the derivative risks of Omicron like supply chain challenges and continued labour shortages as bigger risks to the S&P 500 than the direct impact of less spending on services,” the strategists wrote. — Bloomberg

       The pessimistic assessment mirrors BofA’s bearish outlook for stock markets in the face of a ferocious rally that pushed the S&P 500 to successive records over the past few months. -- Bloomberg