The bad news of rising interest rates and a slowing economy have yet to be baked into the equity prices.

That is according to Amanda Agati, chief investment officer at PNC Asset Management Group.

Commenting on the price action following earnings reports from regional banks last week, Agati thinks the sector could look better, with deposits, net interest income guidance and loan growth down. And the situation stays blink for the next quarter as the Fed plans to raise rates again in May.

"The implications for earnings are not great news: the Financials sector is still expected to drive earnings growth in 2023," she told International Business Times. "But as analysts revise those estimates lower, we expect negative earnings growth for the year."

The situation looks similar in other industries, where companies are barely beating analysts' low expectations thus far.

"The beat rate might look healthy at the index level (+565bps upside surprise), but if you remove the banks, it falls to +200," Agati explained. "It's not just Netflix and Tesla missing on important metrics; this is fairly broad-based like we saw last quarter."

Jon Maier, chief investment officer at Global X ETFs, doesn't see things that way. "Bank earnings have largely been positive- a story of resilience and stability," he told IBT. "Results have been better than expected, with the sector reporting earnings growth of 7.1% for the quarter (as of April 20, 2023). Additionally, some regional banks have reported a large increase in deposits to start Q2, which has been received positively by the markets (WAL)."

Jason Mountford, stock market analyst at trading platform, is on the same side. "The results there have been generally good, with the many big banks notching big earnings beats, off admittedly low forecasts," he told IBT. "Regional banks have fared well in price action, with banks such as Western Alliance and PacWest gaining substantially."

Dan Raju, CEO of Tradier, an infrastructure fabric that powers over 250 investing platforms, sees a mixed picture. "The best way to describe what was at play this week in the mind of retail investors is a mixed sense of caution on one side and some speculative optimism on the other," he told IBT.

Raju saw some disappointing data below the major earnings headlines last week, but no actual dents made in the markets by anyone announcing their earnings. "It's safe to say no one had spotless earnings reports this week, but even after all that, nothing truly moved the needle either way since investors are still cautious about the broader macroeconomic outlook," he said.

Still, according to FactSet, the number of companies reporting positive EPS surprises and the magnitude of these earnings surprises are below their five-year averages, confirming Agati's contention that weak earnings haven't been baked in equity prices thus far.

Still, Agati believes earnings estimates are too optimistic, as the consensus on Wall Street is for a "no landing scenario" next year. "Granted, it's still early innings, but based on where leading economic indicators are pointing down compared to where earnings estimates are, a consensus is still too optimistic," she continued. "Still expecting a 1% earnings growth rate for this year and then a rebound to +12% growth in 2024? The 'no landing' scenario is still a consensus."

Elaborating on the earnings situation this year vis-à-vis last year, Agati thinks that last year's problem was margin compression, while this year is something more severe than that. "Now we're starting to see a little more than that with reports from Tesla and AT&T struggling with gross margins and free cash flow," she said. "Inflation is still very elevated, and it's showing up in earnings reports on a lagged basis, but it's a problem for several industries as demand slows."

Agati is also concerned about valuations, which limit any upside for U.S. equities from here. "With the S&P 500 still trading at an 18x multiple and a weak earnings backdrop, I don't see much upside in the short term," she added.

That's why she advises investors to stick with quality. "Companies that consistently grow earnings, have fortress balance sheets to withstand elevated inflation, and have low leverage in a high-interest rate environment," she said.

There is growing speculation the Federal Reserve will cut interest rates by the end of the year