Welcome to Earnings Season: Here’s What’s to Expect

Goldman Sachs
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Was last week — when the S&P 500 fell 2% after crushing 2021 with 27% in gains — a case of New Year’s jitters or a preview of what’s to come in 2022?

Earnings season kicks off this week, which will help provide some of the pieces to the unfolding puzzle. Here’s what Wall Street sees coming.

Earning Their Keep

It doesn’t bear repeating at this point but here we are: stock markets have been on a tear the last two years. But now low interest rates — a key driver of investors’ inclination to pay high valuations for stocks — could rise as soon as March, the US Federal Reserve said last week. That would put big pressure on the market’s ongoing rally.

It also means there’s going to be a lot more scrutiny on company earnings, which January will offer in spades. Banking giants JPMorgan, Citigroup, and Goldman Sachs will be looked at as indicators of the broader economy. Delta airlines will give investors a glimpse of how the Omicron surge is impacting travel and hospitality. Investors will get a look at the state of consumer products through Procter & Gamble, oil services through Baker Hughes, freight shipping through J.B. Hunt.

The consensus among analysts is to expect things to slow down:

  • According to data firm FactSet, Wall Street estimates the profits at S&P 500 companies grew 22% year-over-year in the fourth quarter — that’s above historical averages but well below recent quarters, like Q2 2021 when there was 91% growth in S&P 500 profits.
  • In all of 2022, profits at S&P 500 companies are expected to grow 9.4%, little more than a fifth of the 45% profit growth estimated for 2021.

Tech, Disrupted: The companies that may get the most scrutiny are growth stocks — firms that trade at huge multiples of their earnings because their selling point is future profits. The technology sector, which is expected to post lower earnings growth than the overall market, is full of companies like this and already fell 4.7% last week.