Investors ‘Flying Blind’ as Clouds Envelop S&P Profit Outlook

Wall Street analysts have a spotty history of calculating how geopolitical risks will weigh on the earnings and stock prices of the companies they cover. And that was before Russia invaded Ukraine.

With nearly a month still left in the first quarter, and the war in Ukraine creating numerous possibilities for disruptions -- from mundane supply issues to catastrophic bloodshed -- can stock market prognosticators really tell investors what lies ahead? Or is everyone in the dark at this point?

“There’s a little bit of that flying blind feeling,” said Dan Eye, chief investment officer at Fort Pitt Capital Group in Pittsburgh, whose firm buys sell-side research but doesn’t depend on it for long-term investment decisions. “Some of the sell-side information can be irrelevant given how quickly the geopolitical situation is changing.”

All of this uncertainty has many analysts on edge about their earnings forecasts. So far, there hasn’t been a catalyst big enough to push expectations lower for the year. But a surge in fuel costs could do it, specifically if U.S. oil prices surge 100% from a year ago and gasoline prices subsequently hit $5 a gallon, according to Nicholas Colas, co-founder of DataTrek Research.

“Gas prices at $5 a gallon is a real shock,” Colas said. “That’s the kind of thing typically causes a recession.”

The national average gas price hit $3.84 a gallon on Friday, up 40% from a year ago, according to AAA. And a barrel of West Texas Intermediate crude costs roughly 75% more than it did a year ago.

But before analysts start cutting their estimates, Colas expects that in the coming weeks companies will begin to warn that their projections for the first quarter are lower due to a slowdown in economic growth.