The sell-side’s most recognizable bear is still skeptical of any overtly rosy outlook for an inflection in corporate profit growth later this year, but his tone was perhaps less emphatic this week.

“Should the leading data improve, the likelihood of the H2 EPS recovery consensus expects would rise and the probability of earnings eventually approaching our below-consensus $195 base case EPS estimate for 2023 would fall,” Morgan Stanley’s Mike Wilson wrote Monday, noting that the upturn in macro data early this year likely helped corporate America clear an earnings bar that was lowered by twice as much as usual looking back two decades.

He conceded that the beat rate this earnings season was “strong” and called out quarter guidance “durable and better than we expected,” but Wilson nevertheless reiterated a number of familiar talking points which all have merit. Wilson, notwithstanding on overblown reputation for unabashed bearishness, doesn’t generally traffic in what I’d call outright hyperbole. The figure below, for example, is very pedestrian, even as it bodes poorly.

ISM, he wrote, “tends to lead rolling earnings surprises for the S&P 500 by six months.” The implication currently is clear enough.

Moreover (and this is the more important point at least from the perspective of macro watchers’ efforts to get a handle on the interplay and feedback loops between pricing power, wage growth and profitability), Wilson juxtaposed the EPS inflection seen by bottom-up consensus with persistent evidence that margin downside looms.

Corporates have demonstrated a remarkable ability to pass along higher labor costs to consumers, something discussed in these pages on too many occasions to count, but Wilson pointed to a leading indicator for margins (an NFIB gauge of demand versus costs) and also forward cost projections, which continue to outpace forward sales expectations, suggesting margin pressure (on the left, below).

“Our EPS model that incorporates the effects of negative operating leverage also projects earnings downside through the end of 2023,” Wilson went on, before reiterating that pricing power tends to track producer prices very closely (on the right, above).

If pricing power fades, so will sales (almost by definition) and because labor costs are likely to stay elevated, margin erosion is a real risk.

But that bear case, plausible as it is, depends on consumers pushing back against higher prices, something that hasn’t been happening in any uniform, across-the-board way. Or at least not yet.

As discussed here, corporates pursuing a “price-over-volume” strategy have been rewarded by investors and that approach is generally still working. I captured it well on Sunday, I think. Whatever you want to call this — “Greedflation,” profiteering or just running a business — it’s not going to stop until consumers push back. As long as companies have pricing power, they’ll wield it.

That, in part, explains why mentions of  “macro” were pervasive on analyst calls during earnings season, something Wilson also addressed on Monday.

“Many earnings reports have qualified that the ’23 growth recovery is contingent on the macro improving, or at least stabilizing through the back half of this year,” he wrote, adding that in his view, “the way that consensus EPS estimates for Q1 evolved through the course of last year and the way that the macro data came in during the first quarter of this year may be providing a false signal that the demand trends we saw at the onset of the year will continue.”