(Bloomberg) — Corporate America’s well-oiled earnings machine has been the backbone of virtually every bullish equity argument this year. It’s helped stocks power past the Federal Reserve’s hawkish pivot and each new variant of the coronavirus. However, stubbornly high prices could force a reconsideration of the ever-increasing profit predictions.

So goes the main bear case on U.S. stocks, which notes that after a steady climb since last year, 12-month estimates for the S&P 500’s operating margins have stalled out since mid-October. The onset of the earnings season saw many companies raise alarm about labor and rising costs.

With enough businesses being able to transfer those costs to consumers successfully, increasing index-level profit margins at all-time highs could prove difficult. However, there has been an increase in estimations which may make it more challenging to achieve a similar performance. While demand is robust, persistently high inflation will erode it, according to Bloomberg Intelligence’s Gina Martin Adams. It’s unclear whether shoppers will continue to be willing to pay higher prices, she said.

“Consumers are starting to get fed up with price increases and they’re starting to fight back, and we’re seeing that manifest itself in margins,” said Martin Adams, BI’s chief U.S. equity strategist. “Prices don’t rise as long as operating margin forecasts are falling.”

Last week’s data showed that inflation is causing the American consumer to lose its footing. After adjusting for rising prices, data showed that November saw little change in purchases of goods or services. This stagnation occurred in November, when real wages growth was 1.9% lower.

So far, inflation’s impact on the stock market has been ambiguous at best in a year when the is poised to close 27% higher. Even with supply-chain problems and shortages of labor, each sector saw double-digit growth in 2021. This was helped by the fact net-profit margins increased across all major industries during last quarter.

And Wall Street analysts aren’t fussed by the prospect of price pressures. They see S&P 500 profits climbing almost 9% next year to $220.40 a share. The forward price-earnings ratio for the index is almost 22. This level of risk implies that the results may not be as expected.

Omicron may mean that it will be more difficult for the company to reach its lofty profits goals. While data indicate the strain is less deadly than predecessors, it has the potential to further exacerbate supply bottlenecks as countries fight to contain the spread, according to Richard Bernstein Advisors’s Dan Suzuki. 

“It’s a pretty fragile supply chain as it is, just as we’re starting to see potentially some signs of relief. To see it continue, that’s definitely putting upward pressure on inflation,” said Suzuki, the firm’s deputy chief investment officer. “When the Fed has just recently started to have serious concerns about inflation, it’s clearly going to move the needle.”

All of it could lead to market conditions similar to 2021’s first few months, where long-dated Treasury yields surged due to growing inflation expectations. Suzuki stated that technology shares, which are the most valuable benchmarks, could be vulnerable to this environment. The Fed expects to increase interest rates by three in 2022. That will add to the stress. 

Despite months of sustained inflation and deeply negative inflation-adjusted wage growth, American consumers have hung tough — the University of Michigan’s final sentiment index actually rose in December. However, the inflection point for demand is nearing, in the eyes of Miller Tabak + Co.’s Matt Maley.

“If inflation remains strong, consumer confidence will begin to wane,” said Maley, the firm’s chief market strategist. “At some point, the higher prices causes consumers to pull in their horns and that will hurt profits in our consumer-driven economy.”

Read the other side of the argument: Big S&P 500 Bull Case Lives On in Unwavering Profit Forecasts

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