Two Things Wall Street Analysts Get Wrong

The Macro Institute's Weekly Economic Primer

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The Macro Institute
February 23, 2026

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Don’t have time to watch the whole video? Here’s 5 Key Takeaways:

🔹 Wall Street Analysts Are Too Optimistic: Despite the fact that on average over half of stocks in the S&P under perform the index on a given year, Wall Street analysts rate around 70% of all companies as a BUY. This is due to a variety of issues including clear conflicts of interest and herding bias.

🔹 Wall Street Not Helpful Identifying Stocks To Avoid: Only ~1% of stocks are rated as a SELL at any time. This means that analysts do not help investors identify portfolio torpedoes, which can be just as important as finding winners.

🔹 Wall Street Focuses Mainly On Earnings: There is an almost linear relationship between revisions to an analysts price target and revisions to a company’s earnings forecast. This means market multiples, a huge piece of the puzzle, are practically ignored when analysts set their price targets.

🔹 Market P/E Is Extremely Influential On Wall Street: Market multiples do play a role in the % of stocks rated as a BUY. There is an inverse relationship between the market’s P/E ratio and the % of companies rated as a buy. This occurs without any deep thought as to why a change in multiple could be warranted.

🔹 Equities Are Driven By Earnings & Multiples: Equity results can be heavily driven by earnings or multiples from year-to-year, so while analysts spend a lot of time forecasting earnings, on years when it’s multiples that are leading the way, Wall Street research will often fail to capture this dynamic given the focus on earnings.

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The Macro Week Ahead

📆 Last Week’s Data Key Takeaways

🔹 Regional PMIs Sent A Mixed Picture: The Empire Index edged down to 7.1 (vs 6.4 forecast), positive for a second month, but input prices surged to 49.1. The Philly Fed stole the show at 16.3 (vs 8.5 forecast), a five-month high, though employment dipped negative for the first time in months, suggesting factories favor automation.

🔹 Homebuilder Confidence Hit a Five-Month Low: The NAHB fell to 36 (vs 38 forecast), the 22nd straight month below 50. Future sales expectations dropped to 46 and buyer traffic slid to 22. Price cuts eased to 36% (from 40%), but 65% of homebuilders are still offering incentives. Affordability remains the binding constraint.

🔹 The Fed Adopts A More Hawkish Tone: January FOMC minutes revealed a 10-2 hold at 3.50%–3.75%. Several officials raised the possibility of rate hikes if inflation doesn't ease, and many wanted two-way language on policy. March cut probability fell from 50% to 6% and the 10-year yield hit 4.1% in response.

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🔹 Core PCE Headed In The Wrong Direction For The Fed: The headline PCE price index hit 2.9% Y/Y (from 2.8%), while core PCE accelerated to 3.0% Y/Y. This was the highest since the spring and a setback for the disinflation narrative. The saving rate dipped to 3.6%, personal spending rose 0.4%, and income rose 0.3%.

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