Editor's note: the analyst's point of view in this article is The Street's Brian Sozzi.

Analyst point of view: lower Wall Street earnings forecasts, which may be more beneficial to the market for a broader forecast.

The three-month earnings correction (ERR) of the S & P 500 fell for the fourth consecutive month in June, from 1.52 to 1.37, according to Bank of America Merrill Lynch. In February, the earnings correction rate hit a record 2.64 as the Trump administration's tax reform plan boosted Wall Street profits. Meanwhile, the month in June fell from 2.05 to 0.97.

Subsequently, the price-to-earnings ratio of the S & P 500, the price investors are willing to pay to hold a share of a company's future profit potential, fell to about 16 times from 18 times earlier this year.

Looking back at the bull market over the past year, it is not hard to see that one of the main drivers is Wall Street, which pushed up their profit forecasts for big American companies. But as investor concerns about a trade war dominate, Wall Street is likely to adopt prices in advance if it has an impact on corporate profits. If this trend continues, the stock market is likely to fall further.

Bank of America Corporation has done his part in the past to mitigate the adverse impact of the downturn in profits on the market.

"in our view, the peak of ERR is not a reason to worry," said SavitaSubramanian, a strategist at Bank of America Corporation. "We find that the best sign of forward returns is whether the ratio is higher / lower than its historical average (currently 0.87) and is significantly higher, indicating high short-term returns. "

Subramanian added:While earnings correction rates in almost all industries (except utilities) have fallen from multi-year or record highs, earnings correction rates in most industries are still above average, with the exception of daily necessities, energy, telecommunications and real estate. "

However, in such an environment, investors need to be more cautious.

(compiled by Futu)