Another crack may be emerging in the U.S. stock market.

“We don’t want to make too much of this (yet), but Wall Street analysts actually cut their Q3 2021 earnings estimates for the S&P 500 last week,” DataTrek co-founder Nicholas Colas wrote in a note Monday. “This, along with slowing economic growth, will make for further volatility.”

Last week’s slightly revised earnings expectations for the third quarter were due to adjustments made by analysts in the industrials and materials sectors, according to the note. Considering current valuations of the S&P 500, DataTrek said U.S. stocks need the “tailwind of rising earnings expectations” as well as companies beating estimates.

“It’s a good idea to lighten up on equity exposure,” Colas said in the note. “The near term is shaping up to be choppy.”

The S&P 500

was up about 0.1% Monday afternoon, trading near its all-time peak of 4536.95 on Sep. 2, after sliding 1.7% last week amid concerns the delta variant of the coronavirus may be slowing the economic recovery. 

The materials sector of the S&P 500 was down 0.1% in Monday afternoon trading, while the industrials sector was up 0.1%, according to FactSet data, at last check.

Read: When the Fed finally steps back, can the U.S. stock and bond markets stand on their own legs?

The S&P 500 is valued at 20.3x earnings estimates for 2022, according to the DataTrek note.

At the end of last week, Wall Street analysts estimated in aggregate that third-quarter earnings per share for the S&P 500 will be $49.23, or $0.07 per share lower than forecast the prior week, Colas wrote, citing FactSet data. “As much as analysts have been persistently too conservative with their estimates since Q2 2020, seeing them cut numbers (however slightly) is still worrisome.”

RBC Capital Markets has lifted its S&P 500 price target this year to 4,500, from 4,325, saying in a report Monday that its earnings-per-share forecast for the index has been revised higher to $200. The bank also raised its 2022 EPS forecast to $222 while introducing a price target of 4,900 for next year.

But “one key risk that we are monitoring for the stock market – and our call – is the possibility that S&P 500 EPS growth will turn negative in early 2022,” RBC analysts led by Lori Calvasina, head of U.S. equity strategy, said in the report. “While we are not worried about an economic recession,” the strategists said they’re watching for “the possibility that EPS growth for the S&P 500 may be weaker than the stock market can tolerate in early 2022.”

Wall Street banks have delivered recent warnings of a looming correction for the U.S. stock market amid concern over stretched valuations. RBC also sees risk of a pullback by year-end, but views it as “a buying opportunity,” according to its report.

See: There’s a growing wall of worry developing for stocks to climb, says Deutsche Bank

DataTrek expressed “confidence” that the S&P 500 could this year push above its recent record high, despite expected volatility. While third-quarter earnings expectations have “stagnated,” U.S. large-cap stocks should still have enough “earnings power” to beat consensus estimates, according to the firm’s note.

“That won’t necessarily help current market sentiment,” Colas said. “We expect September to be volatile.”

Check out: Busy IPO market this week may make 2021 the biggest year for proceeds and break previous record by 30%

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