Joseph Adinolfi
US companies are in a precarious position as the most important week of earnings season begins on Monday.
With 35% of S&P 500 companies due to report quarterly results this week, investors should expect corporate profits to be affected by inflation and the Federal Reserve, according to Savita Subramanian, one of Bank of America’s top companies. It will give us a better understanding of how we are being affected by the rate hikes of the Fed. US equity strategist.
Subramanian said in a client note on Monday that despite a mediocre start to the fourth-quarter earnings season, there is room for a more bleak earnings outlook in the coming weeks.
Earlier this month, she said S&P 500 companies could see earnings shrink by as much as 10% in 2023 compared to 2022. Wall Street generally remains more optimistic than Bank of America, but expectations are down about how corporate earnings will hold up this year. sharply from June. Consensus forecasts for the S&P 500’s net earnings have fallen 11% from its peak in June, according to BofA.
See also: Bank of America’s Subramanian says S&P 500 earnings are at risk of a 10% decline in 2023.
In a memo to clients on Monday, Mr. Subramanian said earnings estimates have continued to decline since the beginning of the year as analysts lowered their forecasts by an unusually large amount.
“Earnings season has shown little fundamental support for the bulls. From last July to now, the consensus has cut earnings from $250 to $226 (half of the $200 forecast), with 2023 EPS starting the year at “We’ve cut 1.5% in 2020, 2.5 times the normal cut,” and 2023E EPS is now below historical correction trends,” she said.
How companies perform in the fourth quarter will be a key clue to how they perform in 2023, she said.
With that in mind, here are some key charts from BofA’s in-depth analysis of the latest earnings season to help investors track the status quo.
This is the busiest week of the quarter for corporate earnings
More than a third of the S&P 500 companies will report results this week, including a handful of tech giants such as Apple (AAPL), Meta Platforms (META) and Amazon.com (AMZN). It’s a schedule.
See also: Could Big Tech layoffs continue to rise? Apple, Amazon, Facebook and Google may hint at biggest week of earnings
All three companies were among the index’s biggest losers in terms of 2022 performance, although performance has improved significantly since the start of 2023.
This is the breakdown of the number of companies the S&P 500 companies report on each day.
Companies are emerging from a historic streak of revenue growth
Outside the energy sector, US corporate earnings shrank for most of last year as companies juggled aggressive inflation, a strong US dollar and aggressive Federal Reserve rate hikes. Prior to that, earnings skyrocketed, marking his 20-year streak of growth, the highest since World War II. According to BofA figures, revenue in 2020 and 2021 is about five times higher than the previous year.
Firms set to report first profit decline since 2020
Unfortunately for investors, this unprecedented boom is reversing. And as of the end of last week, the S&P 500 companies are about to underperform Wall Street’s modest earnings forecasts.
According to FactSet data, the decline in mixed earnings was -5% in Q4 2022. It takes into account both Wall Street’s expectations for companies that haven’t yet reported, and the actual results shared by the 143 S&P 500 companies that reported fourth-quarter earnings by Friday.
If the numbers hold up to final tally, it will be the first time the S&P 500 has reported a year-over-year decline in earnings since the third quarter of 2020.
So far, financial services firms have been the biggest contributor to this poor performance, shrinking nearly 8% year-on-year, largely due to capital market volatility and a sharp drop in trading last year, according to BofA. Activity increased as the Fed raised borrowing costs at its most aggressive pace since at least his 1980s. Financial services companies are also among the fastest to report.
After a strong start to the year, US stocks started the week in the red as investors braced for a deluge of earnings to come.
More than revenue events are happening this week. Some of the world’s largest central banks, including the Federal Reserve, European Central Bank and Bank of England, are expected to hike rates at this week’s meeting.
The S&P 500 is down 1.1% to near 4,026 in recent trading, while the Dow Jones Industrial Average is down 200 points, or 0.6%. The Nasdaq Composite fell 1.7%.
-Joseph Adinolfi
(Closed) Dow Jones Newswire
01-31-23 0759ET
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