The inflation bill has arrived, and Wall Street is starting to discount the "profit feast" of American companies.

US corporate earnings expectations are undergoing their first reversal in months. Inflationary pressures and rising interest rates are eroding profit outlooks, and optimism among Wall Street analysts is starting to fade.

According to a Citigroup index, the number of analysts downgrading earnings expectations has surpassed those raising them, ending a streak of 23 consecutive weeks of upgrades—making it the longest earnings upgrade cycle since September 2021.

Stephan Kemper, Chief Investment Officer of BNP Paribas Wealth Management Germany, attributed this downgrade to the combined impact of rising living costs and higher energy prices, with the most affected sectors being consumer staples, consumer discretionary, materials, and financials. Meanwhile, the Organisation for Economic Co-operation and Development (OECD) released a report this Wednesday warning that global inflation in 2027 will exceed previous forecasts, signaling that pressure for tighter monetary policy will persist.

Based on the index tracked by Citigroup, for the first time in 23 weeks, analysts have downgraded US corporate earnings expectations more than they have upgraded them, marking the end of the longest earnings upgrade cycle since September 2021.

Stephan Kemper said, "The main weakness is driven by the consumer side, whether in consumer staples, consumer discretionary, as well as the materials and financials sectors. I believe these downgrades can be directly linked to rising living costs and higher energy prices."

It is worth noting that, overall, Wall Street analysts remain optimistic about US corporate earnings performance for this year, generally expecting robust profits.

The downgrades in earnings expectations, together with multiple macroeconomic pressures, are weighing on the stock market. Morgan Stanley strategist Michael Wilson warned earlier this week that if stock valuations continue their recent decline and further rises in energy prices prompt additional monetary tightening, the S&P 500 could face up to a 7% downside risk.

The Federal Reserve raised US interest rates earlier this month, its first rate hike in three years, in response to inflationary pressures. This Wednesday's OECD report further reinforced market expectations for a continued tightening path—the organization believes global inflation in 2027 will be faster than previously forecast, with major central banks still needing to maintain a relatively tight monetary policy stance at that time.

For investors, the combination of downward earnings revisions and rising interest rates means equity valuations face a double challenge: on the numerator (corporate earnings) side, profits are under pressure, and on the denominator (discount rate) side, rates are rising, making short-term market adjustment risks difficult to ignore.